Question 12

Berwick Pty Ltd manufactures a product with the following standard costs:

Direct materials: 40 metres @ $2.7 per metre $108

Direct labour: 8 hours @ $18 per hour $144

Total standard prime cost per unit of output $252

The following information pertains to the month of July 2020:

Direct material purchased: 42,000 metres @ $2.76 per metre = $99,360

Direct materials used: 36,000 metres

Direct labour: 7,200 hours @ $18.30 per hour = $131,760

Actual July 2020 production was 1,000 units.

Required:

Compute the following variances for the month of July, indicating whether each variance is favourable or unfavourable:

1. Direct material price variance.

2. Direct material quantity variance.

3. Direct labour rate variance.

4. Direct labour efficiency variance.