MA52 Problem: Variances - Copper Bottom Pot Company Ltd.

MA52 Problem: Variances - Copper Bottom Pot Company Ltd.

The Copper Bottom Pot Company Ltd., (CBPC), manufactures only one product, called The Big Pot. Thecompany uses a standard cost system and has established the following standards per unit of The Big Pot.Standard Quantity

Standard Price

Standard Cost

Direct materials

6.0 kilograms

$14 per kilogram

$84

Direct labour 

1.5 hours

$20 per hour 

$30

The following activities were recorded by CBPC for the production of The Big Pot in January 2000.



The company produced 600 units during the month.

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A total of 4,000 kilograms of material were purchased at a cost of $52,000.

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On January 1, 2000, there was no beginning inventory of materials on hand; 200 kilograms of materials remained in the warehouse unused at the end of the month.

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The company employs 12 persons to produce The Big Pot. In January, each worked an average of 65hours at an average of $21 per hour.

 Required -

a. For direct materials used in the production of The Big Pot:

i.

Compute the direct materials purchase price variance and the direct materials usagevariance.

ii.

The direct materials were purchased from a new supplier who isanxious to enter into a long-term purchase contract. Would you recommend that thecompany sign the contract? Explain. b. For the direct labour employed in the production of The Big Pot:i. Compute the direct labour rate variance and the direct labour efficiency variance.ii. In the past, the 12 persons employed in the production of The BigPot consisted of 4 experienced workers and 8 inexperienced assistants. During January,the company experimented with shifting the labour mix to 6 experienced workers and 6inexperienced assistants. Would you recommend that the new labour mix be continued?Explain