Zafu-Products Ltd produced 10,000 appliances (one of its many products) during August 2020. The accounting records show the following actual data:

Direct materials purchased

50,000

Kilograms @ $5 per kg

Direct materials used

58,000

Kilograms

Direct labour used

14,600

Hours @ $22 per hour

The appliance has the following standard prime costs per unit of finished product:

Direct material: 6 Kilograms @ $4.50 per kilogram

$27.00

Direct labour: 1.5 hours @ $21 per hour

$31.50

Standard prime cost per unit

$58.50

You work for a consulting firm that recently got a contract from Zafu-Products Ltd to conduct performance evaluation of the cost centres. Your report should come up with evidence on the basis of the presented data to assist the company to improve its performance. Your main task would be to conduct variance analysis and identify the responsible party for any deviations and highlight possible causes so that management could take necessary steps to address any performance related issues.

Required:

For the month of August 2020, calculate the following variances and indicate whether each is favourable or unfavourable and interpret the variances to assist the company:

1. Calculate Direct Materials variances: (Write the formulas and show computations)

(i) Direct Materials price variance

(ii) Direct Materials quantity variance

(iii) Explain the meaning of the computed values under '1' (i) and (ii); also highlight the likely cause(s) for each variance. (hint: answer to this part should reflect the condition displayed by the computed variances)

2. Calculate Direct Labour variances: (Write the formulas and show computations)

(i) Direct Labour rate variance

(ii) Direct Labour efficiency variance

(iii) Explain the meaning of the computed values under '2' (i) and (ii); also highlight the likely cause(s) for each variance. (hint: answer to this part should reflect the condition displayed by the computed variances)