Quantitative Analysis Delta company produces a single product known as product X. The company has set the following direct materials and direct labour standards for product X:
Direct materials Direct Labour
Standard Quantity/hours per unit................................................................ ? pounds 2.5 hours
Standard price/Rate.....................................................................................? per pound $18.00 per hour
Standard cost per unit.................................................................................... ? $45.00
During the month of August, the company produced 1,400 units of product X. A total of 6,000 pounds of direct materials was purchased at a total cost of $33,000. The total direct labour cost for the month was $57,000. All materials purchased during the month was used in production. There was no direct materials inventory on hand at the start and at the end of August.
Someone from the company’s management has computed the following three variances:
? Total materials variance: $600 Favourable
? Direct material quantity variance: $2400 Unfavourable
? Direct labour efficiency variance: $9000 Favourable
Required: A) 1. Compute the standard price per pound of materials.
2. Compute the standard quantity of materials allowed for actual production.
3. Compute the standard quantity of direct materials allowed for one unit of product X.
4. Compute the actual direct labour cost per hour for month of August. (2 marks) 5. Compute the direct labour rate variance.
B) How do managers use variances?