Collagen uses automated manufacturing process to produce a variety of panel boards. Using computer-aided manufacturing and robotics, the company has reduced its labour costs to only 9% of total manufacturing costs. Consequently, the company does not account for labour as a separate item but instead accounts for labour as part of overhead.

Consider a part used in electrical distribution systems. The static budget for producing 750 units in March 20X1 is as follows:

Direct materials	$17,000*
Overhead
Supplies	1,785
Power	1,130
Rent and other building services	2,815
Factory labour	1,500
Depreciation	4,500
Total manufacturing costs	$30,000
*3 kg/unit * $8.5/Kilogram (kg) * 750 units

Supplies and power are variable, and other overhead items are fixed costs.

Actual costs in March 20X1 for producing 900 units of panel boards were as follows:

Direct materials	$20,480**
Overhead
Supplies	2,312
Power	1,512
Rent and other building services	2,775
Factory labour	1,681
Depreciation	4,500
Total manufacturing costs	$34,477
**Collagen purchased and used 2,850 kgs of materials at $7.80 per kg.

Required:

1. Compute (a) the direct-materials price and quantity variances and (b) the flexible-budget variance for each overhead item.

2. Identify and discuss recommendations for how Collagen can improve factory labour costs.

Answer rating: 100% (QA)

Solution 1 a Direct materials price variance Actual priceStandard price Actual quantity used Direct ... View the full answer