Workshop Exercise Variance Analysis

Barack Obama Ltd manufactures a single product, Tuxedos. The company uses a standard cost accounting system. From notes scattered on the desk of the cost accountant, you are able to assemble the following data:

1. The total standard cost of each Tuxedo includes:

Direct materials (5 square metres of Y @ $6.00/sq.metre)

Direct labour (4 hours @ $20.00 per hour)

2. 1,000 tuxedos were completed during December. During the year there was no beginning or closing inventories of Work in Process.
3. 5,500 square metres of raw material Y were issued to production during December. Ending inventory of Y at 31^st December is 500 square metres. Purchases of Y were 70 cents per square metre less than the standard price. There was no beginning inventory of raw material Y at 1^st December.
4. Materials variances are isolated at the time of purchase.
5. The total labour variance (LRV + LEV) is $2,000 unfavourable.
6. Actual direct labour time for the month of December exceeded standard by 400 hours.
7. The standard fixed overhead rate is $10 per DL hour and the variable overhead rate is $2.00 per DL hour.
8. Factory overheads are applied on the basis of direct labour hours.
9. Denominator level of activity for the firm at present is 4,500 direct labour hours per month.
10. Actual total overheads for December were $55,000, comprising $44,500 fixed and $10,500 variable.

Required:

1. Compute the direct materials price and quantity variances for December.
2. Compute the direct labour rate and efficiency variances for December.
3. Compute the following for overhead:

1. The variable overhead spending and efficiency variances for December.
2. The fixed overhead spending and production volume variances for December.