(Question 3 is mainly based on Unit 2 Sessions 3 and 4.)

Laurel Ltd is a high-volume manufacturer of three standard items of furniture. Production of each item is overseen by its own supervisor. The business has recently invested in manufacturing technology to improve efficiency but is still in the process of finalising new standard costs of production to reflect its new manufacturing capacity.

Data related to its last week of production are as follows:

	Units produced	Standard time per unit (Hours)
Tables	400	4.0
Chairs	1,000	1.2
Wall units	200	6.0

Actual hours worked	5,600
Standard wages rate per hour	4
Actual wages incurred	20,160

a.Discuss the advantages and disadvantages of variance analysis for Laurel Ltd.

b.Calculate the following variances: (6 marks)

• i.direct labour total variance
• ii.direct labour rate variance
• iii.direct labour efficiency variance
• c.Suggest two likely causes for the direct labour rate variance calculated in (b. ii.) above.
• d.Suggest two likely causes for the direct labour efficiency variance calculated in (b. iii.) above. (3 marks)
• e.Further variance analysis identifies that Laurel Ltd has a favourable material usage variance for the same production period.
  • i.How might this favourable variance relate to the recent investment in manufacturing technology to improve efficiency? (3 marks)
  • ii.Assume that, instead, Laurel suffered an adverse material usage variance. How might this adverse variance relate to the direct labour rate and efficiency variances calculated in part b?