Question One Part A Makwebo Plc, a premium food manufacturer, is reviewing operations for a three month period of 2009. The company operates a standard marginal costing system and manufactures one product, XP, for which the following standard revenue and cost data per unit of product is available:

Selling price K12.00 Direct material A 2.5 kg at K1.70 per kg Direct material B 1.5 kg at K1.20 per kg Direct Labour 0.45 hours at K6.00 per hour

Fixed production overheads for the three-month period were expected to be K62, 500. Actual data for the three-month period was as follows:

Sales and production 48,000 units of XP were produced and sold for K80, 800. Direct material A 121,951 kg were used at a cost of K200, 000. Direct material B 67,200 kg were used at a cost of K84, 000. Direct labour Employees worked for 18,900 hours, but 19,200 hours were paid at a cost of K117, 120. Fixed production overheads K64, 000.

Budgeted sales for the three-month period were 50,000 units of Product XP. Required Calculate the following variances

1. Sales volume contribution and sales price variances (5 Marks) 2. Material price and usage variances for material A and B (8 Marks) 3. Labor rate and efficiency variances ( 4 Marks) 4. Suggest any possible explanation for material price and usage variances