The L Company produces one product whose standard cost for the year 20x3 was as follows:

Direct materials $40.00

Direct labour 40.00

Manufacturing overhead 23.75

$103.75

Direct materials are purchased at $8 per Kg and each unit required about 5kg, Direct Labour requires 2.5 hours at $16 per hour. Manufacturing Overhead is applied on the basis of Direct Labour hours. Each unit requires 2.5 Direct labour hours at a rate of 9.5

The denominator level of activity is 40,000 hours and the total budgeted fixed overhead is $180,000. The budgeted selling price of the product is $145.

At the end of 20x3, the following actual results are produced by the accounting department:

Units produced and sold 18,000

Selling price $155

Direct labour hours 39,750

Total direct labour cost $606,187.50

Direct materials purchased 110,000 kg

Average cost of direct materials purchased $9.35

Variable overhead $106,000

Fixed overhead $175,000

Direct material used 88,750kg

Required -

a. Prepare the Variable OH and Fixed OH Variances (8 marks)

b. Explain each variance (5 marks)

c. Suggest possible improvements that can be made with the variances (2 marks)