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The Ebonie Manufacturing Company's costing system has two direct cost categories: direct materials and direct manufacturing labour. Manufacturing overhead (both variable and fixed) is allocated

The Ebonie Manufacturing Company's costing system has two direct cost categories: direct materials and direct manufacturing labour. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard direct manufacturing labour-hours (DLH). At the beginning of 2022/2023, Ebonie adopted the following standards for its manufacturing costs:

Standards

Input

Cost per Output Unit

Direct Materials

3.00

kg at

$

5.00

per kg

$

15.00

Direct Manufacturing Labour

5.00

hrs at

$

15.00

per hr

$

75.00

Manufacturing Overhead

Variable

$

6.00

per DLH

$

30.00

Fixed

$

8.00

per DLH

$

40.00

Standard Manufacturing Cost per Unit

$

160.00

The denominator level for total manufacturing overhead per month in 2022/2023 is 40,000 direct manufacturing labour-hours. Ebonie Manufacturing's flexible budget for January 2023 was based on this denominator level. The records for January indicated the following:

Actual Costs

Direct Materials Purchased

25,000.00

kg

$

5.20

per kg

Direct Materials Used

23,100.00

kg

Direct Manufacturing Labour

40,100.00

Hours

$

14.60

per hr

Total Actual Manufacturing Overhead (Variable & Fixed)

$

600,000.00

Actual Production

7,800.00

Output Units

Required

  1. Construct a schedule of total standard manufacturing costs for the 7800 output units in January.
  2. For the month of January 2023, calculate the following variances, indicating whether each is favourable (F) or unfavourable (U), in good format with workings:

a/ Direct materials price variance, based on purchases

b/ Direct materials efficiency variance

c/ Direct manufacturing labour price variance

d/ Direct manufacturing labour efficiency variance

e/ Total manufacturing overhead spending variance

f/ Variable manufacturing overhead efficiency variance

g/ Production-volume variance.

3

Discuss at least 2 possible reasons for each of the above variances.

4

Explain the importance of performing variance analysis as part of the management accounting

function?

5

Explain how management will use the results of this variance analysis.

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