Reference no: EM132772134

Question - Pratt Industries manufactures and sells one type of glass bottle. The company uses a standard costing system to control its production costs. The following information was available for the month of October:

Production cost Budget Actual

Direct material used 12,000 kg 10,450 kg

Direct labour 14,500 hours at $8.60/hr 15,260 hours at $8.40/hr

A total of 8,900 kg of raw material was purchased during the month, at a price of $3.60 per kg. The standard cost of raw material is $3.50 per kg.

Material price variances are calculated on purchase.

Required -

(a) Calculate the following for the month of October:

(i) Direct material price variance (on purchase) and direct material efficiency variance

(ii) Direct labour price variance and direct labour efficiency variance

(b) Provide TWO possible reasons for the direct labour price variance and TWO possible reasons for the direct labour efficiency variance.

(c) Supermarkets should benchmark their costs against Aldi supermarkets because they have the lowest costs. Do you agree? Explain your answer.