Topic: Standard Cost and Variance Analysis

QUESTION 2 (20 MARKS: 36 MINUTES) Empuk Pillow Sdn. Bhd. (EPSB) produces soft pillows made from feathers. The company uses a standard cost system and has set the following standards for materials and labour for each pillow: Direct Materials: Feathers (0.5 kg @ RM20 per kg) RM10 Fabric for pillow cases (2 meters @ RM3 per meter) 6 Direct labour (0.5 hours @ RM8) Total prime cost RM20 EPSB allocates both variable and fixed manufacturing overheads to pillows on the basis of standard direct labour-hours (DLH). The denominator level for manufacturing overheads per month in 2019 is 550 DLH. Based on this denominator level, the standard costs for manufacturing overhead (MOH) are as follows: Variable MOH RM2.00 Fixed MOH RM3.00 During the month of May 2019 EPSB produced 1,000 pillows. Actual feathers purchased were 550 kg, at RM21 per kg and actual fabric purchased was 2,200 meters at RM3.20 per meter. There were no beginning or ending inventories of feathers or fabric. Actual direct labour was 485 hours at RM7.75 per hour. The total actual MOH cost (variable and fixed) was RM2,900. Due to constraints in the input material of feathers and the resulted rising prices, EPSB is considering of substituting some feathers with polyester in the second half the year. If the plan proceeds, the inner will be made of 80% feathers and 20% polyester. REQUIRED: (a) Calculate the flexible-budget variance for both direct materials. (3 Marks) (b) Determine the price and efficiency variances for direct labour. (3 Marks) (c) Discuss briefly TWO (2) possible reasons for the above labour efficiency variance, (2 Marks) (d) Calculate using columnar presentation: i. efficiency variance for manufacturing overhead cost (3 Marks) ii. product-volume variance (3 Marks) (e) Compute the spending variance for total manufacturing overhead. (3 Marks) (f) Describe, if the plan for the second half of 2019 is implemented, how EPSB's direct material efficiency variance can be further analyzed to improve the efficiency