Question

OnTop Limited produces high end tableware. Their products are a timeless icon of Italian style, that enhances any convivial fine food occasion and elevates any moment. The company developed the following standard costs for direct material and direct labor for one of their major products, the Medici pitcher:

	Standard quantity	Standard price
Direct materials	0.2 pounds	$25 per pound
Direct labor	0.1 hours	$15 per hour

During May, OnTop Limited produced and sold 10,000 pitcher using 2,200 pounds of direct materials at an average cost per pound of $24 and 1,050 direct labor hours at an average wage of $14.75 per hour.

Required:

1. Determine the following variances for May:

1. Direct material rate (price) variance
2. Direct material efficiency variance
3. Direct labor rate (price) variance
4. Direct labor efficiency variance  
5. ) Flexible budget variance

2. State and explain two possible reasons for the material variances
3. State and explain two possible reasons for the labor variances
4. What should the managers of OnTop Limited do? How would you advise the managers of OnTop Limited to use the variance analysis?

Answer 1