Question 3

Wasabi Pte Ltd makes separate journal entries for all cost accounting-related activities. It uses a standard costing system for all manufacturing items. For the month of April 2016, the following activities have taken place:

Actual Direct Manufacturing Materials Purchased	$300,000
Direct Manufacturing Materials Used At Standard Price	250,000
Direct Materials Price Variance	10,000	Unfavourable
Direct Materials Efficiency Variance	15,000	Favourable
Direct Manufacturing Labour Rate Variance	6,000	Favourable
Direct Manufacturing Labour Efficiency Variance	4,000	Unfavourable
Direct Manufacturing Labour Payable	172,000

The estimated fixed overhead costs for 2016 is $324,000. The company uses direct labour hours for fixed overhead allocation and anticipates 10,800 hours during the year for 540,000 units. An equal number of units are budgeted for each month. During April 2016, 48,000 units were produced and $28,000 was spent on fixed overhead.

Required:

1. Describe how the above is tracked through the accounting system by posting the necessary journal entries to record all direct cost variances for the month.

(10 marks)

2. Help the manager interpret the variances by providing two (2) possible causes for

(i) the labour rate variance; and (ii) the labour efficiency variance. Explain how the two (2) variances are related.

(16 marks)

3. Calculate all fixed overhead variances for April 2016.

(6 marks)

4. Explain why the materials price variance is usually computed at the point of purchase rather than when materials are used during the manufacturing process.

(4 marks)