Woodstock Precision Machining (WPM) has a highly automated manufacturing process for producing a variety of auto parts. Through the use of computer-aided manufacturing and robotics, the company has reduced its labour costs to only 5 percent of total manufacturing costs. Consequently, the company does not account for labour as a separate item but instead accounts for labour as part of overhead. 

Consider a part used in antilock braking systems. The master (static) budget for producing 750 units in March 2011 is 

Supplies and power are variable, and the other overhead items are fixed costs. Actual costs in March 2011 for producing 900 units of the brake part were 

1. Compute (a) the direct materials price and quantity variances and (b) the flexible-budget variance for each overhead item. 

2. Comment on the way WPM accounts for and controls factory labour. 

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$18,000* Direct materials Overhead Supplies 1,875 Power 1,310 Rent and other building services Factory labour Depreciation Total manufacturing costs 2,815 1,500 4,500 $ 30,000 * 3 kg/unit x $8/kg × 750 units. Direct materials $21,840* Overhead Supplies 2,132 Power 1,612 Rent and other building services 2,775 Factory labour Depreciation Total manufacturing costs 1,618 4,500 $34,477 * WPM purchased and used 2,800 kilograms of materials at $7.80 per kilogram.