Treehouse Beds produce beds for children. They sell beds through a variety of retail outlets. The standard cost of producing one of their most popular beds are as follows:

Manufacturing costsStandard QuantityStandard priceStandard unit cost

Direct Material(1x12" treated pine)50 meters$2.5 per meter$125.00

Direct Labour5 hours$10.00 per hour$50.00

Manufacturing overhead

Variable5 hours$5.00 per hour$25.00

Fixed$40.00

Standard Manufacturing cost per unit$240.00

Treehouse's master budget was based on planned production and sales of 3 000 beds. Actual results were as follows:

Produces 2500 beds

Purchased and used 130000 metres of direct materials for a total cost of $312 000

Total direct labour cost was $123 750 for 11 250 hours

Variable overhead cost was $54 000

Fixed overhead was $115 000

Required

1.Calculate the following variances and label them as either favourable (F) or unfavourable (U). Show all workings: [12 marks]

Direct Materials Price Variance

Direct Materials Quantity/Volume Variance

Total Direct Materials Variance

Direct Labour Price Variance

Direct Labour Quantity/Volume/Efficiency Variance

Total Direct Labour Variance

How can the analysis of budget variances lead to continuous improvement in an organisation?