ZYLEX is a manufacturer of a multi layer fabric, the standard cost to make a uni

Question

ZYLEX is a manufacturer of a multi layer fabric, the standard cost to make a unit of the fabric is as follows: Direct Material Direct Labour Factory overhead 20 metres $1.35 per metre 4 hours $17.00 per hour (per unit) 27.00 68.00 24.00 119.00 Total Cost per unit In July 500 units were made and the follow ing information was presented: Material 9500 metres $13,110 Labour 2100 hours $38,430 OverheadTotal $11,800 $63,340 Required a. Calculate the Direct Materials Price and Efficiency Variances, the Labour Rate and Efficiency variances and the Factory Overhead Variance. Calculate rates to 2 decimal places only (5 x 1/2 mark) b. Other than the reason "The standard (budgeted) figure was incorrectly calculated", list one reason you could suggest for each variance calculated. (5 x 1/2 mark)

Explanation / Answer

a. Direct material price variance = ( Standard price per unit - Actual price per unit ) x Actual materials purchased = $ ( 1.35 - 1.38) x 9,500 = $ 285 Unfavorable

Direct materials efficiency variance = ( Standard quantity allowed for actual output - Actual quantity used ) x Standard price per unit = ( 500 x 20 mtrs. - 9,500) x $ 1.35 = $ 675 Favorable.

Labor rate variance = ( Standard labor hour rate - Actual labor hour rate ) x Actual hours used = $ ( 17.00 - 18.30) x 2,100 = $ 2,730 Unfavorable

Laboe efficiency variance = ( Standard hours allowed for actual output - Actual hours used) x Standard labor hour rate = ( 500 x 4 - 2,100) x $ 17 = $ 1,700 Unfavorable.

Factory overhead variance = Standard factory overhead - Actual factory overhead = 500 units x $ 24 - $ 11,800 = $ 200 Favorable

b.

Direct material price variance $ 285 U Superior quality materials Direct material efficiency variance $ 675 F Superior quality materials Labor rate variance $ 2,730 U Higher skilled workers engaged on low skill job. Labor efficiency variance $ 1,700 U Poor supervision Factory overhead variance $ 200 F Optimisation of production facilities

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