Skold Company produces slacks. Materials for the slacks are dyed in large vats. After dyeing the materials for a given colour, the vats must be cleaned and prepared for the next batch of materials to be coloured. The following standards for changeover for a given batch have been established:
Direct materials (2.5 kg @ $1.20) .................. $3.00
Direct labour (0.40 hr. @ $16.00) .................. 6.40
Standard prime cost ................................. $9.40
During the year, 79.500 kilograms of material were purchased and used for the changeover activity. There were 30,000 batches produced, with the following actual prime costs:
Direct materials ..................... $ 86,800
Direct labour ..................... 173,850 (for 11,400 hrs.)
Required:
1. Compute the materials and labour variances associated with the changeover activity, label- ling each variance as favourable or unfavourable.
2. What differentiates favourable variances and unfavourable variances?