standard cost system to help control its costs
Question 2 (This question has 3 items, (a), (b), and (c)) (4 + 4 + 4 = 12 marks)
Morry Games developed a new play station called AWESOME. Morry Games has a standard cost system to help control its costs. The following standards have been established for AWESOME.
• Direct materials 15 grams per AWESOME.
• Standard direct material cost per AWESOME is $10.
• Direct labour 1.2 hours per AWESOME.
• Standard cost of direct labour is $14.40 per AWESOME.
• During May the company produced 9,000 AWESOME units.
Production data for May are:
• Direct materials: 165,000 grams were purchased at a cost of $104,000; 20,000 grams of this was still in inventory at the end of the month.
• Direct labour: 11,400 direct labour hours were worked at a cost of $142,500.
(a) Calculate Direct materials price and quantity variances. (2 + 2 = 4 marks)
(b) Calculate Direct labour price and quantity variances. (2 + 2 = 4 marks)
(c) Are the variances computed in (a) and (b) linked? Provide a brief commentary on the variances computed above, including explanations regarding the price and the quantity variances for Direct materials, and the price and the quantity variances for Direct labours. (4 marks)