Question

Benoit Wines uses a standard costing system and has established the following standards for the prime costs for its Merlot by the litre:

                              

                               Standard quantity                          Standard price                               Standard cost

Direct materials                  1.75kg of grapes                            $2.31/kg                                                 $ 4.05

Direct labou r           0.25 direct labour hours           $16.00                                         $4.00

During August, Benoit purchased 430,000 kilograms of direct materials at a total cost of $967,500 from a new supplier. The total factory wages for August were $1,080,000, 90% of which was for direct labour. Benoit manufactured 245,000 litres of Merlot during August using 67,500 hours of direct labour and 428,760 kilograms of direct materials. Required:

a) Calculate the direct materials purchase price and direct materials quantity variances for August.

b) Calculate the direct labour rate and efficiency variance for August.

c) Comment on the above variances from the perspective of the purchasing manager and the production manager

Answer 1