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Ocean Side Ltd uses a standard costing system and has developed the following standards for producing...

Ocean Side Ltd uses a standard costing system and has developed the following standards for producing small inflatable life rafts.

Direct materials

2.5 metres at $5 per metre

Direct labour

3.5 hours at $15 per hour

Variable overhead

$10 per direct labour hour

Fixed overhead

$5 per direct labour hour

Ocean Side produced 500 life rafts in the month of June. During June they purchased 2,000 metres of material at a cost of $12,000 and used 1,200 metres of material in production. They incurred 1,700 direct labour hours at $14 per hour. The overhead for June was $15,000 variable and $8,500 fixed. Ocean Side's denominator volume of direct labour hours is 1,680 per month.

Ocean Side management has a policy of determining materials variances at the point of purchase.

Calculate all possible variances from the case facts given above. Label all variances and indicate whether they are favourable (F) or unfavourable (U).

Maggie is having trouble getting the point of variance analysis, she just doesn't understand why anyone bothers investigating variances "after all it is only unfavourable variances that indicate problems, it is simply a waste of time". Do you agree with Maggie? Explain in full why you agree or disagree.

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Expert Solution

ekkarill92 answered 1 year ago
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