Question 2

Amber Furniture Sdn. Bhd. uses a standard cost system. One of the companys most popular products is a cherry wood desk. The per-unit standard costs of the desk, assuming a normal volume of 3,000 units per month, are as follows:

		RM	RM
Direct materials, 100 board-feet of wood at RM2.00 per foot			200.00
Direct labour, 4 hours at RM10.00 per hour			40.00
Manufacturing overhead (applied at RM20 per unit)
	Fixed (RM30,000 3,000 units of normal production)	10.00
	Variable	10.00	20.00
Total standard unit cost			260.00

During May, 2,800 desks were scheduled and produced at the following actual unit costs:

		RM
Direct materials, 90 feet at RM1.50 per foot		135.00
Direct labour, 3 hours at RM9.00 per hour		27.00
Manufacturing overhead, RM34,000 2,800 units		12.00
	Total actual unit cost	174.00

Required:

1. Evaluate the performance of the company in terms of materials price variance, material quantity variances, labor rate variance, labour efficiency variance, overhead spending variance and volume variance for the month. (18 marks)

2. Evaluate the possible reasons behind each of the variances. (7 marks)

(Total: 25 marks)