Required:

1. Compute the following variances for October:

a. Direct materials price and quantity variances.

b. Direct labour rate and efficiency variances.

c. Variable manufacturing overhead spending and efficiency variances.

2. Summarize the variances that you computed in requirement 1 above by showing the net overall favourable or unfavourable variance for October. What impact did the net variance figure have on the companys income statement?

London Company's Forest City Plant produces precast ingots for industrial use. Anne-Marie Gosnell, who was recently appointed general manager of the Forest City Plant, has just been handed the plant's income statement for October. The statement is shown below. Gosnell was shocked to see the poor results for the month, particularly since sales were exactly as budgeted. She stated, I sure hope the plant has a standard costing system in operation. If it doesn't, I won't have the slightest idea of where to start looking for the problem." Budgeted $125,000 Actual $125,000 Sales (2,500 ingots) Variable expenses: Variable cost of goods sold* Variable selling expenses 20, 425 10,000 25,530 10,000 30,425 35,530 Total variable expenses Contribution margin 94,575 89, 470 Fixed expenses: Manufacturing overhead Selling and administrative 30,000 37,500 29,500 37,500 Total fixed expenses 67,500 67,000 Operating income (loss) $ 27,075 $ 22, 470 *Contains direct materials, direct labour, and variable manufacturing overhead. The plant uses a standard costing system, with the standard variable cost per ingot details shown below: Direct materials Direct labour Variable manufacturing overhead Standard Quantity or Hours 2.0 kilograms 0.54 hours 0.27 hours Standard Price or Rate $ 1.25 per kilogram $10.00 per hour $ 1.00 per hour Standard Cost 2.50 5.40 0.27 Total standard variable cost $ 8.17 *Based on machine-hours. Gosnell has determined that during October the plant produced 2,500 ingots and incurred the following costs: a. Purchased 6,300 kilograms of materials at a cost of $1.50 per kilogram. There were no raw materials in inventory at the beginning of the month. b. Used 4,900 kilograms of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 1,800 direct labour-hours at a cost of $9.50 per hour. d. Incurred a total variable manufacturing overhead cost of $1,080 for the month. A total of 900 machine-hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis