The L. Ming
Company has had great difficulty controlling costs in Singapore during the past
three years. Last month a standard cost and flexible-budget system was installed.
Results for a department follow.

The department initially planned to manufacture 9,000 audio-speaker
assemblies in 6,000 standard direct labour hours allowed. However, material
shortages and a heat wave resulted in the production of 8,100 units in 5,700
actual direct labour hours. The standard wage rate is $5.25 per hour, which is
$0.20 higher than the actual average hourly rate.
1. Prepare a detailed performance report with two major sections: direct
labour and variable overhead.
2. Prepare a summary analysis of price and efficiency variances for direct
labour and spending and variances for variable overhead.
3. Explain the similarities and differences between the direct labour and
variable overhead variances. What are some of the likely causes of the
overhead variances?

Transcribed Image Text:

EXPECTED COST PER STANDARD DIRECT LABOUR HOUR FLEXIBLE-BUDGET VARIANCE Lubricants $0.60 Other supplies 0.30 Rework 0.60 Other indirect labour 1.50 Total variable overhead $3.00 F Favourable U=Unfavourable $300 F 225 U 450 U 450 U $825 U