1. Monoclean Company manufactures a single product, Glamour. The standard cost specification sheet shows the following standards for one unit of Glamour:
8 kg of material M @ $6.5 per kg $52
4 hours of direct labour @ $7 per hour $28
Fixed Overhead – $6 per direct labour hour $24
Variable Overhead – $3 per direct labour hour $12
A total of 420 Glamours were produced during July.
Actual costs incurred during July were:
3,200 kg of material M were purchased @ $7.50 per kg
2,000 kg of material M were used.
Actual overhead costs incurred:
Fixed $7,500 Variable $4,200
a) Compute the following variances:
Direct material price variance
Direct material quantity variance
Direct labour rate variance
Direct labour efficiency variance
Variable overhead spending variance
Fixed overhead budget variance
b) The company’s production manager stated that ‘Favourable variances are good news and therefore, require no investigation’. Do you agree? Explain your position.
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