SkiTwin Corporation uses a standard cost system to assist in its manufacture of water skis and uses direct labour hours to apply its overhead. The company controller provides you with the following information on the results of 

its most recent year end. 

BudgetActual

Units produced100,00099,000

Units sold100,00096,000

Direct materials50,000 kgs47,840 kgs

Direct labour40,000 DLHs37,720 DLHs

Production costs:

Direct materials$200,000$207,404

Direct labour$500,000$471,500

Variable overhead$80,000$84,640

Fixed overhead$160,000$162,000

There were no beginning or ending work-in-process inventories but there were 4,000 units of finished goods at the end of the year.

Required:

a.Calculate the standard cost of goods sold for the year just ended. (7 marks)

b.Calculate the direct materials flexible budget variance. (5 marks)

c.Calculate the direct labour efficiency variance. (3 marks)

Solution

a) Standard cost per unit:DM$2.00

DL 5.00

VOH 0.80

FOH 1.60

$9.40 x 96,000 units sold = $902,400

b) Actual DM cost$207,404

Budgeted DM 99,000 x $2 = 198,000

$ 9,404Unfavourable

c) ($500,000 / 40,000 DLHs) x (37,720 - 39,600) = $23,500 Favourable

Explain in step in the solutions where they acquired the numbers from. I have figured out A, however need help with question B and C.