Chatham plant of Morril's Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows:
Direct materials (6.0 kg @ $5.00) ....................... $30.00
Direct labour (1.6 hrs. @ $12.00) ....................... 19.20
During the year, the Chatham plant had the following actual production activity:
a. Production of motors totalled 50,000 units.
b. A total of 260,000 kilograms of raw materials was purchased at $4.70 per kilogram.
c. There were 60,000 kilograms of raw materials in beginning inventory (carried at $5 per kilogram). There was no ending inventory.
d. The company used 82,000 direct labour hours at a total cost of $1,066,000.
e. The Chatham plant's practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labour hours.
Required:
1. Compute the materials price and usage variances. Of the two materials variances, which is viewed as the most controllable? To whom would you assign responsibility for the usage variance in this case? Explain your reasoning.
2. Compute the labour rate and efficiency variances. Who is usually responsible for the labour efficiency variance? What are some possible causes for this variance?
3. Assume that the purchasing agent for the small motors plant purchased a lower-quality raw material from a new supplier. Would you recommend that the plant continue to use this cheaper raw material? Briefly explain.
4. Prepare all possible journal entries.