VARIANCE

The Allison manufacturing produces a major subassembly for a 6.0 horsepower motor for lawnmowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for a single subassembly is as follows.

Direct materials (6kg at R50) R300 Direct labour (1.6 hours at R120) R192

During the year, the Lubbock plant had the following actual production activity:

a. Production of subassemblies totaled 50000 units. b. A total of 260000 kilograms of materials was purchased at R47.00 per kilogram. c. There were 60000 kilograms of raw materials in beginning inventory (carried at R50 per kilogram). There was no ending inventory. d. The company used 82000 direct labour hours at a total cost of R10660 000 .

Lubbock plant's practical capacity is 60000 units per year. Standard overhead rates are calculated based on practical capacity measured in standard direct labour hours.

Required: 3.1 Calculate the materials price and usage variances. (4) 3.2 Of the two materials variances, which is viewed as the more controllable? To whom would you assign responsibillty for the usage variance in this case? Explain. (3)

3.3 Calculate the labour rate and efficiency variances. (4)

3.4 Who is usually responsible for the labour efficiency variance? Give at least two possible causes for this variance? (3)

3.5 Assume that the purchasing agent for the small motors plant purchased a lower-quality raw material from a new supplier. Identify three variances that could result from the purchasing of this low-quality raw material and calculate its net effect. Would you recommend that the plant continue to use this cheaper raw material? (6)

3.6 Prepare all possible journal entries.