Question 27

At the end of June, the manager of the B.C. manufacturing plant was provided with the following variance analysis report.

Budget

Actual

Variance

Favourable (F)/

Unfavourable (U)

Production in units

320,000

338,00018,000FProduction costs:

Direct material$849,109$864,312$(15,203)UDirect labour

1,200,0001,238,760(38,760)

UVariable overhead costs

192,000201,313(9,313)

UFixed overhead costs

192,000189,2452,755FTotal production costs

$2,433,109

$2,493,630$(60,521)

U

The manager immediately called the production supervisor, demanding an explanation for the large unfavourable variance for the quarter. The production supervisor was puzzled. He thought the cost-cutting measures they had incorporated were beginning to work. He certainly wasn't expecting such a large discrepancy.

The standard rates the plant was using with its normal costing system are summarized below.

Volume

Cost

Direct material

1.10kg per unit

$2.40per kg

Direct labour

0.25hour per unit

$15.00

per hour

Predetermined overhead rate:

Variable

0.25hour per unit

$2.40per hour

Fixed

0.25hour per unit

$2.40per hour

Other relevant information:

1.A total of 379,000 kg of direct materials were purchased during the quarter at a cost of $2.50 per kilogram.2.A total of 360,130 kg of direct materials were used in production to manufacture 338,000 units.3.Payroll recorded 83,700 direct labour hours at an average cost of $14.80 per hour.

(a1)Calculate the following production variances and also the type of variance (favourable, unfavourable, neither)

Material price variance

Material quantity variance

Labour price variance

Labour efficiency variance

Variable overhead variance