Compute and interpret price and usage variances for material, labour, and overhead inputs
Scenario
5K Ltd. makes and sells a single product "JAY" standard costs relating to "JAY" have been calculated as follows:
Per unit($)
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Direct material:
X : 4 Kg at $12 per kg
Direct labour, 5 Hours at $7 per hour
Variable production Overhead, 5 Hours at $2 per hour Fixed production Overhead 5 hours at $10 per hour
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48.00 35.00 10.00 50.00 143.00
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Overhead is absorbed into production on the basis of standard hours of production and budaeted volume of production is 20.000 units.
The budgeted selling price of LAN is $150.
For the period under consideration the actual results were :
18,000 units were produced out of which 17,000 were sold for $2,618,000. Relevant details of production are as follows:
Materials 76,000 Kg's costing $ 836,000 Labour 84,000 hours were paid $604,800 Variable production overhead was $172,000 Fixed production overhead was $1,030,000
Using the above data:
Compute and Interpret price and usage variances for material, labour, overhead (fixed and variable) and sales.