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King & Brothers Inc. produces kite surfs. For May 2019 the company budgeted the production of 9,000 units. Its costing system has two direct costs:
King & Brothers Inc. produces kite surfs. For May 2019 the company budgeted the production of 9,000 units. Its costing system has two direct costs: direct materials and direct manufacturing labour. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard direct material costs. At the beginning of 2019, King & Brothers adopted the following standards for its manufacturing costs: Per unit Direct materials 3 kg at S4 per kg S12 Direct manufacturing labour (DLH) 3 hours at $20 per hour $525 Manufacturing overhead Variable $6 per kg Fixed $8 per kg ? ? Total manufacturing labour hours per month 27,000 hours Budgeted fixed manufacturing overhead costs $216,000 Budgeted variable manufacturing overhead costs $162,000 The records for May indicated the following: Direct materials purchased 30,300 kg at $4.3 per kg Direct materials used 24,500 kg Direct manufacturing labour 26,000 hours at $24 per hour Actual fixed manufacturing overhead $230,000 Actual variable manufacturing overhead $170,000 Actual production 8,600 units REQUIRED: 1. For the month of May 2019, compute the following variances, indicating whether each is favourable (F) or unfavourable (U): a) Direct materials price variance, based on purchases (2 marks) b) Direct materials efficiency variance (2 marks) c) Direct manufacturing labour price variance (2 marks) d) Direct manufacturing labour efficiency variance (2 marks) e) Variable manufacturing overhead cost spending variance (2 marks) 1) Variable manufacturing overhead efficiency variance (2 marks) 8) Fixed overhead costs production-volume variance (2 marks) h) Fixed overhead costs spending variance (2 marks) 2. Identify a potential cause and briefly discuss a practical recommendation for the largest of all variances in your analysis (both for spending and efficiency variance)
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