QUESTION TWO

$(15$ marks$)$

LUKINGUD$($LKG$)$ Co makes high quality, hand$-$made eyeglasses which it sells for an average of Sh$.18,000$ per pair. Very highly skilled employees are used. The standard cost of labour for each pair is Sh$.4,200$ and the standard labour time for each pair is three hours. In the last quarter, LKG Co had budgeted production of $12,000$ pairs, although actual production was $12,600$ pairs to meet demand.

$37,000$ hours were used to complete the work and there was no idle time. The total labour cost for the quarter was Sh$\mathrm{.}53,193,000.$ At the beginning of the last quarter, the design of the eyeglasses was changed slightly. The new design required workers to include the company's logo on to the back of every frame made and the estimated time to do this was $15$ minutes for each eyeglass. However, no$-$one told the accountant responsible for updating standard costs that the standard time per pair of eyeglasses needed to be changed. Similarly, although all workers were given a $2\%$ pay rise at the beginning of the last quarter, the accountant was not told about this either.

Consequently, the standard was not updated to reflect these changes.

Required:

$($a$)$ Calculate the total labour rate and total labour efficiency variances for the last quarter.

$(4$ marks$)$

$($b$)$ Analyse the above total variances into component parts for planning and operational variances in as much detail as the information allows.

$(8$ marks$)$

c$)$ Highlight three possible causes for labour variances $(3$ marks$)$