Question 6

Seqyl ltd makes quality lunchboxes. The sales have been unsatisfactory for the last three (3) years. The new appointed financial controller who thinks a new strategy must be implemented. The suggested strategy to increase production volumes but the standard costs should remain the same.

		$
Material vinyl	0.5kg @ $2.30 per kg	1.15
Direct labour	90 minutes @ $25.00 per hour	32.50
Variable overheads	90 minutes @ $15.00 per hour	22.50
Fixed overheads	90 minutes @ $ 45.00 per hour	58.50

The actual results were as follows

Actual Production	3250 lunch boxes
		$
Material vinyl	1600 kg @2.50	4,000
Direct labor	4150 hours @BWP28 per hour	116,200
Variable overheads		61,555
Fixed overheads		114,650

Required:

Compute the following variance

i Material Price variance [3 Marks]

ii. Material Usage Variance [3 Marks]

iii. Direct Labor Rate variance [3 Marks]

iv. Direct Labor efficiency variance [3 Marks]

v. Assuming the standards costs do not change, determine total standard quantity of vinyl and standard direct labour costs required to manufacture 3550 lunch boxes. [3 marks]