Reference no: EM132559184

Scooter Company has the following standard cost sheet using an expected capacity of 120,000 units:

Variance analysis

Direct materials           25 K..@ $1.20 $30.00

Direct labour               2 h..@ $12.50 $25.00

Variable overhead         3 machine hours @ $8.00 $24.00

Fixed overhead            3 machine hours @ $12.00 $36.00

Total                                                                  $115.00

During the year, 125,000 units were produced. Actual costs included the following:

Direct materials 3,200,000 Kgs purchased for $3,725,000. 3,110,000 Kgs were used in production.

Direct labour 260,000 hours worked; payroll totaled $3,320,000.

Variable overhead costs: $3,025,000

Fixed overhead costs: $4,275,000

Machine hours used 378,000 hours

Required:

Question 1. Calculate the following variances for the company and explain the (potential) reason(s) for any variance (favorable or unfavorable):

a. Direct materials price variance

b. Direct labour efficiency variance

c. Variable overhead spending variance

d. Fixed overhead volume variance

Question 2. Using your calculated variances for materials, labour and overhead in (a), (b), (c) and (d) above, explain the interaction between materials, labour and overhead variances.