Question 1 Nirvana Ltd manufacture caskets. It uses a standard costing system to control costs. The cutting department cuts the shapes and the process is very labour intensive and requires highly skilled labour to minimize the wastage of the expensive hardwood used. The standard cost card for a unit of casket is given below. Hardwood Direct labour Fixed overhead Total cost 2 cubic metres at $ 200 per cubic metre 45 minutes at $20 per hour 45 minutes at $60 per direct labour hour $400 $ 15 $ 45 $460 Fixed overhead absorption rates are based upon budgeted monthly fixed overheads of $29,250 and a budgeted monthly output of 650 units of casket. In the most recent month, 620 units of casket were made and sold using 1,200 cubic metres of hardwood. The actual sales price is 700 per unit. Purchases for the period were 1,300 cubic metres of hardwood at $ 210 per cubic metre. 2,950 direct labour hours were worked and paid at $ 21.20 per hour. Actual fixed overhead were $ 31,000. You are required to: a) Calculate and state the following whether it is favourable or unfavourable variance i) Material price variance ii) Material usage variance iii) Labour rate variance iv) Labour efficiency variance b) Explain the meaning and possible causes of the material variances you have calculated in part a)