Question 4 - Week 8 (7 marks)

Aqua Company Ltd manufactures recyclable soft drink cans. A unit of production is a case of twelve (12) dozen cans. The following standards have been set by the production engineering staff and the management accountant:

Direct Material Quantity

Price

Direct Labour Quantity

Rate

$3.12

4kg

$0.78 per kg

$4.025

0.25 hour $16.10 per hour

Actual costs incurred in the production of 50,000 units were as follows: Direct Material $170,100 for 210,000 kg Direct Labour $210,600 for 13,000 hours

All materials were purchased during this time period.

Required:

a) Use the variance formulas to calculate the direct material price and quantity variances and the direct labour rate and efficiency variances. Indicate whether each variance is favourable or unfavourable. (6 marks)

b) Comment on the companys material variances. (1 mark)