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Sime Darby Plantation is one of the world's largest palm oil producers. Thecompany produces approximately ... 5% of the world's crude palm oil outputannually, of which about 97% ... are Certified Sustainable Palm Oil" (SimeDarby Website). Sime Darby's main mill, located on Carey Island in Malaysia converts palmfruit into palm oil.

The Carey Island mill uses standard costing with absorption costing and closes all variances directly to Cost of Goods Sold at the end of each month. The Carey Island mill is viewed as a single department, in which raw material (palm fruit) is added at the start of the period. Labor and overhead are added during the production process, with the early part of the process being very labor-intensive, while the later part is more automated. As a result of this difference, work in process inventory will typically have a higher percentage completed with respect to labor than it has with respect to overhead. Labor is a variable cost. All overhead is fixed overhead, and is allocated based on kilograms of finished product.

The mill's annual budget estimated production of 3 billion (3,000,000,000) kg of palm oil. It was expected that each kg of palm oil produced would require 4 kg of palm fruit (note that this can vary in practice due to the quality of the inputs and the efficiency of the process). The budgeted costs for the year were:

Palm Fruit	$ 360,000,000
Labor	20,000,000	(based on 15,000,000 labor hours for the year)
Fixed Overhead	600,000,000
	$1,080,000,000

The budget assumes that there will be no ending inventory of any kind, and assumes that production levels, efficiencies and costs would remain constant during the year.

At the start of July, Carey Island had no inventory. During the month of July, Carey Island completed 200 million kg of palm oil. 180 million kg of these were sold, and 20 million kg remained in finished goods inventory. In addition, Carey Island began an additional 40 millionkg during July, but this is only 60% complete with respect to labor and 20% complete withrespect to overhead as of the end of the month. Actual costs incurred during July were:

Palm Fruit	$24,000,000	(Using 1,200,000,000 kg of fruit)
Labor	7,200,000	(Each labor hour actually produced 280 kg of oil)
Fixed Overhead	52,000,000
	$83,200,000

1. Compute the variance which best captures the effect on direct materials cost of the change in the cost of one kg of palm fruit (i.e., a direct materials price variance).

2. Compute the variance which best captures the effect on direct materials cost of the change in the output produced (i.e., a direct materials volume variance).

3. Compute the variance which best captures the effect on labor cost of the change in the number of labor hours used to produce each kg of palm oil (i.e., a labor efficiency variance). 4. Compute the variance which best captures the effect on fixed overhead cost of the change in output produced (i.e., a fixed overhead volume variance).

5. How much fixed overhead is included in Carey Island's final value in cost of goods sold on their income statement for the month ended July 31?

Hint: You can ignore direct materials and labor for this question.

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