Question 3 You are the general manager of the Silk Company Ltd, a company that designs, manufactures and sells clothing and linens. One of the company's products is a premium set of fitted sheets. The Silk Company has a standard cost system in use for all its products. According to the standards that have been set for the fitted sheets, its factory should work 3,870 hours each month to produce 2,150 sets of fitted sheets. The standard costs associated with this level of production activity are: Total Per set of seat covers 42,570 19.80 16,125 7.50 3.30 30.60 Direct materials Direct labour Variable manufacturing overhead (based 7,095 on direct labour-hours) During December, the factory worked only 3,250 direct labour hours and produced 2,250 sets of fitted sheets. The following actual costs were recorded during the month: Total Per set of seat Covers Direct materials (11,700 square metres) 45,630 20.28 Direct labour 17,250 7.60 Variable manufacturing overhead (based 7,750 3.40 on direct labour-hours) 31.28 At standard, each set of fitted sheets should require 5 square metres of material. All of the materials purchased during the month was used in production.