Question 1

During January, Microchem Ltd produced 1200 units of special product called Stylex, and the accounting records indicated the following:

• Direct material purchased                         36000 kilograms @ \$1.30 per kilogram
• Direct material used                                 19000 kilograms
• Direct labour 4200 hours @ \$17 per hour

Stylex has the following standard prime costs:

• Direct material: 20 kilograms @ \$1.20 per kilogram          \$24.00
• Direct labour hours: 4 hours @ \$16 per hour            64.00
• Standard prime cost per unit          \$88.00

Required:

1              Calculate the total standard direct material costs and direct labour costs for January. (2 marks)

2              For the month of January, calculate the following variances, indicating whether each is favourable or unfavourable:

1. a) Direct material price variance.
2. b) Direct material quantity variance.
3. c) Direct labour rate variance.
4. d) Direct labour efficiency variance. (4 marks)

3              Demonstrate how the solution will change if the following information changes: the standard direct labour rate is \$18 per hour and the standard direct material price is \$1.40. (6 marks)

Question 2

During June, the actual cost Andrew Ltd.’s has incurred in the production of 2000 units was as follows:

Direct labour      \$120250                \$18.50 per hour

The standards for one unit of Henderson’s product are as follows:

Direct labour      3 hours per unit                Rate: \$18 per hour

Required:

Draw diagrams depicting the direct labour rate and efficiency variances. Indicate whether each variance is favourable or unfavourable.

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