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
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:
- a) Direct material price variance.
- b) Direct material quantity variance.
- c) Direct labour rate variance.
- 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)
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
Draw diagrams depicting the direct labour rate and efficiency variances. Indicate whether each variance is favourable or unfavourable.
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