The Accountants at Value Vases Developed the Following Standards for Producing

question 22

Essay

The accountants at Value Vases developed the following standards for producing exquisite vases from a liquid silicate:
Direct materials 2.5 litres @ $5 per litre
Direct labour 3.5 hours @ $15 per hour
Variable overhead $10.00 per direct labour hour
Fixed overhead $5.00 per direct labour hour
Value's volume of direct labour hours for normal costing is 1,680 each month. In a recent month, Value produced 500 vases and incurred the following costs:
Direct materials purchased & used 1,200 litres @ $6 per litre
Direct labour 1,700 hours @ $14 per hour
Variable overhead $15,000
Fixed overhead $8,500
a)Calculate the following eight variances:
Direct material price variance
Direct material efficiency variance
Direct labour price variance
Direct labour efficiency variance
Variable overhead spending variance
Variable overhead efficiency variance
Fixed overhead spending variance
Fixed overhead production volume variance
b)Suggest one possible cause for each of the following variances calculated in part (a):
Direct material price variance
Direct labour efficiency variance
Fixed overhead spending variance

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Definitions:

Straight-Line Depreciation

A method of allocating the cost of a fixed asset evenly over its useful life.

Lease Payments

Regular payments made by a lessee to a lessor for the use of an asset over a specified period.

Net Advantage

The overall financial benefit that is realized from engaging in a particular investment, decision, or action.

Distillation Unit

A piece of equipment used in the process of separating components or substances from a liquid mixture through selective boiling and condensation.