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In: Operations Management
Queenstown Baggage Limited has developed the following cost standards for the production of its leather backpacks:
|
Standard cost per backpack |
|
|
Leather (0.9 metre x $22 per metre) |
$19.80 |
|
Direct labour (1.3 hours x $9 per hour) |
$11.70 |
|
Variable overhead (1.3 hours x $15 per hour) |
$19.50 |
Variable overhead at the company is applied on the basis of direct
labour hours. The actual results for last month were as
follows:
|
Number of backpacks produced |
15,000 |
|
Direct labour hours incurred |
18,800 |
|
Metres of leather purchased |
14,500 |
|
Metres of leather used in production |
14,100 |
|
Cost of leather purchased |
$306,675 |
|
Direct labour cost |
$159,800 |
|
Variable overhead cost |
$285,760 |
Required:
i. Calculate the materials price variance, and mention three potential reasons for the variance result.
ii. Calculate the materials quantity variance, and mention three potential reasons for the variance result
iii. Calculate the labour efficiency variance, and mention three potential reasons for the variance result
iv. Joshwood Slovakia has recently joined Kerikeri Baggage Limited, a sister company of Queenstown Baggage Limited, as a Business Analyst. While going through last year’s variance analysis report, he found that the company uses direct labour hours as the basis for applying variable manufacturing overhead costs. He also found that, last year, the company’s labour efficiency variance was unfavourable. However, he noticed that variable overhead efficiency variance was missing in the last year’s report. Joshwood wonders whether the last year’s variable overhead efficiency variance was favourable or unfavourable. What do you think, and why? [Maximum word limit: 120 words].
In: Accounting