Question C:

Assena-Products Ltd produced 8,000 appliances (one of its many products) during June 2019. The accounting records show the following actual data:

Direct materials purchased	24,000	Kilograms @ $5 per kg
Direct materials used	22,000	Kilograms
Direct labour used	38,000	Hours @ $20 per hour

The appliance has the following standard prime costs per unit of finished product:

Direct material: 3 Kilograms @ $4.80 per kilogram	$ 14.40
Direct labour: 5 hours @ $19.80 per hour	$ 99.00
Standard prime cost per unit	$ 113.40

You work for a consulting firm that recently got a contract from Eliana Ltd to conduct performance evaluation of the cost centres and propose possible actions to improve firm performance. Your main task is to conduct variance analysis and highlight the possible causes so that management could take necessary steps to address problems.

Required:

For the month of June 2019, calculate the following variances and indicate whether each is favourable or unfavourable:

1. Calculate Direct Materials variances:

(i) Direct Materials price variance (1 mark)

(ii) Direct Materials quantity variance (1 mark)

(iii) Explain the meaning of the computed values under 1 (i) and (ii); also highlight the likely cause(s) for each variance. (hint: answer to this part should reflect the condition displayed by the computed variances)

(1 mark)

2. Calculate Direct Labour variances:

(i) Direct Labour rate variance (1 mark)

(ii) Direct Labour efficiency variance (1 mark)

(iii) Explain the meaning of the computed values under 2 (i) and (ii); also highlight the likely cause(s) for each variance. (hint: answer to this part should reflect the condition displayed by the computed variances)

(1 mark)

(Total 6 marks)