Dante’s Statue Company produces lawn statues for the hotels. The standard cost of producing one statue is:
Material (2 pounds @ Rs 22.50) 45
Labour (0.5 hours @ Rs 100) 50
Overhead 99
Total 194
Standard variable overhead is Rs 54 per unit and fixed annual overhead is Rs 900,000. At the start of 2004, expected production was 20,000 units. Throughout 2004, 22,000 statutes were produced. The following information, associated to actual costs incurred in 2004, is available
Purchased: 44,000 pounds of material for Rs 968,000
Used: 46,200 pounds of material
Worked: 10,300 labor hours costing Rs 1,133,000
Actual overhead incurred was Rs 2,080,000
Required:
a) Explain that the standard overhead rate per unit is Rs 99.
b) Compute material, labor and overhead variances.
c) In brief comment on the possible causes of material and labor variances.
d) How might a favorable material price variance and an unfavorable labor efficiency variance be related to an unfavorable material usage variance?