QUESTION TWO Pamoja Limited specializes in the manufacture of liquor. The liquor is made from a solution of chemical powder AX and liquid chemical BY. After manufacturing the liquor, the company packs in into plastic tubes before distributing it to the customers. The standard prime cost of a tube of the liquor is as follows: Liquor Sh. per tube Sh. per tube Materials: Powder AX 15 Liquid chemical BY 6 Plastic tube 3 Direct labour: Mixing and pouring Total standard prime cost 24 18 42 The standard material allowance for each tube of the liquor is 2kg of chemical powder AX, 7 litre of liquid chemical BY and one piece of plastic tube. The standard wage rate of mixing and pouring the chemicals is Sh. 45 per hour. During the month ended 31 March 2020, 45,000 tubes of the liquor were made. There was no work in progress at the beginning or end of the month and the receipts and issues of materials during the month were as shown below: Powder Liquid Plastic Chemical AX Chemical BY tube Opening Stock 15,000kg 2,000 litres 1,000 tubes Purchases 100,000kg @ Sh. 7 per kg 6,000 litres @ Sh. 23 per litre 2,000 tubes @ Sh. 4 each 6,000 litre @ Sh. 25 per litre 50,000 tubes @ Sh. 3 each Issues 98,000 kg 10,500 litres 45,200 tubes Employees working on the mixing and pouring of the chemicals worked a total of 2,050 hours during the month ended 31 March 2020. They were paid gross wages amounting to Sh. 8,910,000. It is the policy of the company to analyze variances from the standard prime costs. Required: a) Materials price variance b) Materials usage variance c) Direct labour efficiency variance d) Direct wages rate variance (6 marks) (6 marks) (2 marks) (2 marks) e) () Two possible causes of direct labour efficiency variance (ii) Two possible causes of direct material usage variance (2 marks) (2 marks)