Question
The BLM company uses very stringent standard costs in evaluating its manufacturing efficiency. These standards the company uses are not that ideal, however, the Chief
The BLM company uses very stringent standard costs in evaluating its manufacturing efficiency. These standards the company uses are not that ideal, however, the Chief Operating Officer and the Production Manager are revising a strategy to achieve a better to ideal standards.
Presented below are the BLM Company,s standards.
I Materials
Items Per Unit Unit Cost Measurement
Product A 1lb $0.63 lb
product B 12oz $1.00 lb
product C 4oz $0.88 lb
Direct Labour
Item Per Unit Unit Cost Measurement
Labour 15 mins $8.00 hour
Pre-determined overhead rate based on direct labour hours = $4.28
The October figures for purchasing, production, and labour are the following:
(1) The Company purchased 229,000 pounds of raw materials in October at a cost of $0.78 cents per pound
(2) production used 229,000 pounds of raw materials to make 115,500 units in October
(3) Direct labour spent 18 minutes on each product at a cost of $7.80 per hour.
(4) Overhead costs for October total variable costs is $54,673 while total Fixed costs is $73,800.
The company's Management Accountant has to calculate the following and submit the report to the Chief Operating Officer;
(a) Materials price variance
(b) Materials quantity variance
(c) Total material variance
(d) Labour price variance
(e) Labour quantity variance
(f) What is the Total labour variance
and finally (e) Evaluate the variances for this company for October. Explain to BLM Company what these variances suggest.
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