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QUESTION 3 (16 marks) PolyGame Ltd is a Hong Kong based manufacturing company and uses...

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QUESTION 3 (16 marks) PolyGame Ltd is a Hong Kong based manufacturing company and uses a standard costing cost system to control costs. PolyToys Division is part of PolyGame and produces a toy call the SPEED. The direct materials and direct labour standards for one unit of SPEED are given below: Direct Materials: 6kg per unit at $0.50 per kg Direct labour: 1.3hours per unit at $8.00 per hour During October 2014, PolyToys produced 3,000 SPEED toys with 20,000 kg of direct material and 4,000 direct labour-hours. To obtained a price of $.48 per kg of direct material, the purchasing manager of PolyToys has purchased 20,000kg of direct material in October and the direct labour was paid $36,000 for October Required: a. Compute the following variances for October 2014: (8 marks) i. Direct materials price and usage variances. ii. Direct labour rate and efficiency variances. b. Give a brief explanation of the possible causes of labor variances computed in part (a). (4 marks) c. If variable manufacturing overhead is applied to production on the basis of direct labour hours and the direct labour efficiency variance is unfavourable, will the variable overhead efficiency variance be favourable or unfavourable? Explain your answer. (4 marks)

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