HOMEWORK (VARIANCES ANALYSIS) Task for: LAU JUN HAN & THE GANG (present the answer during the class on 26/10/2020). Note : Other students (in group) need to answer the questions too as you might be lucky if you are being selected to present your answers too. So please be ready with the answers and name of group members. MARKS will be given to the group(s) equally (those selected to present only) Question Lovely Sister Sdn Bhd (LSSB) manufactures a leather stylish handbag. The following standards have been established for the stylish handbag's materials and labour inputs: Standard quantity Standard Standard cost (rate in RM) (RM) Direct materials 0.5 kg 46.00 23.00 Direct labour 0.75 hour 15.00 11.25 During the first week of July, the company had the following results Units produced 5,000 units Actual direct labour cost RM70,000 Actual direct labour hours 5,000 hours Materials purchased and used 2,900 kg at RM47.00 per kg The purchasing agent located a new source of slightly higher quality leather, and this material was used during the first week in July. Also, a new manufacturing layout was implemented on a trial basis. The new layout required a slightly higher level of skilled labour. The higher quality material has no effect on labour utilization. Similarly, the new manufacturing approach has no effect on material usage Required: a) Compute the materials price and usage variances. The variances are essentially attributable to the higher quality of materials. Would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly (9 marks) b) Compute the labour rate and efficiecy variances. Assuming that the labour variances are attributable to the new manufacturing layout, should it be continued or discontinued? Explain. (8 marks) c) Refer to the requirement (b). Suppose that the industrial engineer argued that the new layout should not be evaluated after only one week. His reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same in the second week and that the actual labour hours were 8,000 and labour cost was RM96,000. Should the new layout be adopted? (8 marks) (Total: 25 Marks)