Question

Waterways Continuing Problem 12

At the end of June the manager of the B.C. manufacturing plant was provided with the following variance analysis report:

		Budget		Actual		Variance		Favourable (F)/ Unfavourable (U)
Production in units		302,000		319,000		17,000		F
Production costs:
Direct material		$507,360		$522,480		$(15,120)		U
Direct labour		1,283,500		1,323,000		(39,500)		U
Variable overhead costs		90,600		94,501		(3,901)		U
Fixed overhead costs		151,000		145,945		5,055		F
Total production costs		$2,032,460		$2,085,926		$(53,466)		U

The manager immediately called the production supervisor, demanding an explanation for the large unfavourable variance for the quarter. The production supervisor was puzzled. He thought the cost-cutting measures they had incorporated were beginning to work. He certainly wasn’t expecting such a large discrepancy.

The standard rates the plant was using with its normal costing system are summarized below.

		Volume			Cost
Direct material		1.40	kg per unit		$1.20	per kg
Direct labour		0.25	hour per unit		$17.00	per hour
Predetermined overhead rate:
Variable		0.25	hour per unit		$1.20	per hour
Fixed		0.25	hour per unit		$2.00	per hour

Other relevant information:

1.		A total of 454,000 kg of direct materials were purchased during the quarter at a cost of $1.30 per kilogram.
2.		A total of 435,400 kg of direct materials were used in production to manufacture 319,000 units.
3.		Payroll recorded 78,750 direct labour hours at an average cost of $16.80 per hour.

Calculate the following production variances.( Need the amount and if its F, U or Neither Favourable/Unfavourable

Material price variance		$	FavourableNeither favourable nor unfavourableUnfavourable
Material quantity variance		$	UnfavourableNeither favourable nor unfavourableFavourable
Labour price variance		$	FavourableNeither favourable nor unfavourableUnfavourable
Labour efficiency variance		$	FavourableUnfavourableNeither favourable nor unfavourable
Variable overhead variance		$	UnfavourableFavourableNeither favourable nor unfavourable

Answer 1