Question #3 (12 marks)

Spiderbox Company's produces ice boxes for frozen food market. The company had been

struggling with meeting their budget, and determined that it was largely due to labour issues and

an inexperienced workforce as they were late entrants into the market. At the beginning of

January, they started hiring experienced workers from one of their competitors to try to fix their

labour issue. During February, the company produced 1,250 boxes.

Total actual costs incurred for the month of February:

Fixed Overhead $15,000

Actual Labour (6,000 direct labour hours) $115,200

Actual Material (24,600 kilograms purchased and used) $56,580

The Standard Cost Per Unit:

Direct Labour (5.0 hours @ $18.00 per hour) $90.00

Direct Material (18 kg. @ $2.20 per kg.) 39.60

Variable Overhead (5.0 hours @$1.50 per direct labour hour) 7.50

Fixed Overhead (5.0 hours @ $3.20 per direct labour hour) 16.00

Per Unit Cost $153.10

February Budgeted Information:

Fixed Overhead for the month $15,000

Planned Activity for the month 5,000 direct labour hours

Required:

a) From the foregoing information, compute the following variances for February. Also, identify whether the variance is favourable (F) or unfavourable (U):

i) Material price variance [1.5 marks]

ii) Material quantity variance [1.5 marks]

iii) Direct labour rate variance [1.5 marks]

iv) Direct labour efficiency variance [1.5 marks]

v) Fixed overhead budget variance [1.5 mark]

vi) Fixed overhead volume variance [1.5 marks]

b) Comment on whether Spiderbox was able to fix the problem with regards to their labour issue. Explain. Also comment/interpret the Fixed Overhead variances. [3 marks]