Melaka Industries Sdn. Bhd. uses a standard cost system. Variances on direct cost items are calculated to help management understand the source of differences between actual and budgeted costs. The information below refers to Job Y703:
Job Y703 has a standard requirement of 5 kg. of raw material at a price of RM100 per kg. Direct labour requirement is 0.5 hour at a rate of RM12 per hour. Job Y703 which concerns the production of 9,000 units of a certain product had actually required 40,000 kg of raw materials at a cost of RM97 per kg. Direct labour cost for 5,000 hours amounted to RM60,000.
Required:
a) Calculate the respective variances for direct materials and direct labour.
b) Assuming that the direct materials for Job Y703 were purchased from a new supplier, would you recommend continuing with this new supplier? Give your reasons, citing the variances as your main basis and other arguments which may be relevant.