Central Grid plc manufactures tungsten parts which pass through two processes, machining and polishing, before being transferred to finished goods. The management of the company have in operation a system of standard costing and budgetary control. The standard cost and budget information for April 20X8 has been established by the management accountant as follows:

Output passes through both processes and there is no opening or closing work in progress.

Additional information:

1. The actual production costs and details for April 20X8 are as follows:

(i) The output that passed through the two processes was 12,000 units and there was no opening or closing work in progress.

(ii) Direct material used at standard prices was £64,150.

(iii) Direct material used at actual prices was £60,390.

(iv) The direct wages bill and the direct labour hours clocked for the machining department were:

2. Variances for the polishing department have been calculated and reveal the following:

Required:

(a) Calculate the total direct materials variance and its analysis into:

(i) Direct materials usage variance

(ii) Direct materials price variance.

(b) Calculate the overall direct labour variance for the machining department and analyse this variance into:

(i) Direct labour efficiency variance

(ii) Direct labour rate variance.

(c) Identify the possible reasons for each of the variances calculated for the machining department in (a) and (b) above and also for the variances given for the polishing department.

(d) Discuss possible interrelationships between these variances.

Transcribed Image Text:

Standard cost per unit Direct material Direct labour Standard Cost and Budget Details for April 20X8 Budgeted output - units (See Note below) Budgeted direct labour hours Machining £5 £12 16,000 48,000 Polishing £4.50 16,000 24,000