Topline Surf Boards manufactures a single product. The standard cost of one unit of this product is as follows:

During October, 6,000 units were produced. Selected data relating to the month's production follow:

There was no beginning inventory of raw materials. The variable and fixed manufacturing overhead rates are based on direct labour-hours.

Required:

1. For direct materials:

a. Compute the price and quantity variances for October.

b. Prepare journal entries to record activity for October.

2. For direct labour:

a. Compute the rate and efficiency variances for October.

b. Prepare a journal entry to record labour activity for October.

3. For variable manufacturing overhead:

a. Compute the spending variance for October, and verify the efficiency variance given above.

b. If manufacturing overhead is applied to production on the basis of direct labour-hours, is it possible to have a favourable direct labour efficiency variance and an unfavourable variable overhead efficiency variance? Explain.

4. For fixed manufacturing overhead:

a. Compute the volume variance for October.

b. Compute actual costs for October.

5. State possible causes of each variance that you have computed.

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Direct materials: 2 metres at $3 per metre $6.00 Direct labour: 1 hour at $4.50 per hour. . .. 4.50 Variable manufacturing overhead: 1 hour at $3 per hour 3.00 Fixed manufacturing overhead: 1 hour at $5 per Total standard variable cost per unit…. hour 5.00 ... $18.50 Materials purchased: 20,000 metres at $2.85 per metre Materials used in production: 12,650 metres Direct labour: ? hours at $ ? per hour . . .. Variable manufacturing overhead cost incurred.. $57,000 $27,950 $20,475 $ 1,500 U 6,200 hours Variable manufacturing overhead efficiency variance Denominator level of activity for October .. Fixed manufacturing overhead budget variance . 1,000 U