Green Ltd produces a special valve used in the burners of gas stoves. The firm uses the first-in, first-out (FIFO) process costing method for product costing. The costs entered into work in process inventory are standard costs, which are set annually. The standards for direct material and direct labour, which are based on one equivalent unit of production, are as follows:
Direct material per unit …………………….. 1 kilogram @ $10 per kilogram
Direct labour per unit ………………………………. 2 hours @ 24 per hour
The following data relate to the month of April:
■ The beginning inventory consisted of 2500 units, which were 100 per cent complete as to direct material and 40 per cent complete as to direct labour.
■ An additional 10 000 units were started during the month.
■ The consisted of 2000 units, which were too per cent complete as to direct materia and 40 per cent complete as to direct labour.
■ Costs applicable to April production are as follows:
_______________________________________________ Actual Cost _______ Standard cost
Direct material purchased and used (11 000 kilograms) …… $121 000 ……………$100 000
Direct labour (25 000) hours actually worked) …………….. 625 000 …………….. 494 400
Required:
For each element of prime production costs (direct material and direct labour), calculate the following for April:
(a) Equivalent units of production.
(b) Cost per equivalent unit of production, at actual cost and at standard cost.
2. Prepare a schedule that calculates the following April variances, indicating whether each variance is favourable or unfavourable:
(a) Direct material price variance.
(b) Direct material quantity variance.
(c) Direct labour rate variance.
(d) Direct labour efficiency variance.
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