Kranberry Networks Ltd had implemented a standard costing system to aid it in assessing the performance of its operations. In the first quarter of the current year, the company had the following variances:

The company hired a new supervisor at the beginning of the second quarter. Based on the supervisor’s inputs, the company replaced faulty machines. The company has reskilled its labour workforce to bring in efficiency in its production process. The company’s cost records for the second quarter of the year are given below:

Required
1. Determine the following standards based on the variances and actual values provided for the first quarter.
a. Standard price per unit of raw material
b. Standard quantity of materials to be used in production in a quarter
c. Standard rate per hour of direct labour work
d. Standard hours of work allowed for a quarter’s production

2. Based on the standards determined in Requirement 1, compute the following variances for the second quarter of the year.
a. Direct materials price variance.
b. Direct materials quantity variance.
c. Direct labour rate variance.
d. Direct labour efficiency variance.

3. In the first quarter, Kranberry Networks Ltd faced an unfavourable direct materials quantity variance due to faulty machines. List other possible factors that can lead to an unfavourable direct materials quantity variance. Also, identify the person or department responsible for ensuring that material usage is kept in line with standards.

4. Identify the possible reasons for the unfavourable labour efficiency variance faced by Kranberry Networks Ltd in the first quarter of the year. Also, discuss the impact of a fixed labour force on the productivity of the workforce.

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Direct materials price variance Direct materials quantity variance Direct labour rate variance Direct labour efficiency variance The following additional information is provided for the first quarter: Actual quantity of raw materials used per unit Actual cost of raw material per kg Actual time taken to manufacture one unit Actual wage rate per hour Actual cost of direct material purchased and used Actual direct wages paid £1,200 favourable £324 unfavourable £3,375 favourable £90 unfavourable 4.00 kg £7.00 3.00 hours £8.25 £42,000 £37,125