QUESTION 3 (ASSIGNMENT)

As a newly employed management accountant of Difficult Times Limited, you have been assigned the task of assessing the performance of a division within the company. The division, which is a major production centre, uses standard absorption costing for product costing and stock valuation purposes. The cost card for the product line where you intend to start your assessment shows the following data:

Quantity E

Direct materials 10 kgs 105

Direct labour -Category A 30 minutes 15

- Category B 45 minutes 9

Variable overheads 20% of material 21

Fixed overheads (note) 30 minutes @ E12 per hour 6

Standard absorption cost 156

Note: Fixed production overheads are absorbed on the basis of standard time allowed for Category A labour. The monthly budget for Category A labour was 2,500 hours.

In the most recent month, 4,977 units were made at the following costs:

Direct materials -	Purchased	55,000 kgs	555,600
-	Used	52,350 kgs
Direct labour -	Category A	2,610 hours	77,648
-	Category B	3,730 hours	45,000
Variable overheads		114,925
Fixed overheads			29,055

Required:

(a) Calculate the following variances:

1. Direct materials price and usage.
2. Direct labour rate and efficiency variance for both categories of labour.
3. Variable overheads expenditure and efficiency variance.
4. Fixed overheads expenditure and production volume variance.

(b) Briefly comment on the information provided about the departments performance by the variance analysis.