QUESTION TWOSpecial Ice Water Ltd is a manufacturer of various products including one that is marketed as Pure-Aqua. The company has developed standard costs for one bottle of Pure-Aqua, as follows:StandardStandard priceor rateStandardcostquantity7 litres£12.00 per litre£ 84.00Direct materialsDirect labour5 hours72.5014.50 per hour4.40 per hourVariable manufacturing overhead5 hours22.00Total standard cost£ 178.50During the month of May, the following activity was recorded by the company in relation to theproduction of Pure-Aqua:Materials purchased were 32,000 litres at a cost of £390,400.There were no beginning stocks of materials on hand to start the month. At the end of themonth, 2,400 litres of materials remained unused in the warehouse.The company employs 70 skilled workers to work on the production of Pure-Aqua. DuringMay, each of them worked an average of 300 hours at an average rate of £15 per hour.Variable manufacturing overhead is assigned to Pure-Aqua on the basis of direct labour-hours. Variable manufacturing overhead costs incurred during May totalled £93,450.During May, 4,250 bottles of Pure-Aqua were produced.Compute the following variances for May:Direct material price and quantity variances.Direct labour rate and efficiency variances.Variable overhead spending and efficiency variances.(b)Identify two possible reasons for each of the variances that you have computed above.(c)Explain what is meant by the term 'management by exception' and critically evaluate theusefulness of standard costs in facilitating this process.(a)

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Special Ice Water Ltd is a manufacturer of various products including one that is marketed as Pure- Aqua. The company has developed standard costs for one bottle of Pure-Aqua, as follows:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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