McCain manufactures the bags of frozen french fries used at many restaurants. Last week, McCain purchased (transferred in from its potato farms) and used 100,000 kg of potatoes at a price of $0.75 per kilogram. During the week, 2,000 direct labour hours were incurred in the plant at a rate of $12.25 per hour. The standard price per kilogram of potatoes is $0.85, and the standard direct labour rate is $12.00 per hour. Standards indicate that for the number of bags of frozen fries produced, the factory should have used 97,000 kg of potatoes and 1,900 hours of direct labour.
Requirements
1. Determine the direct materials price and efficiency variances. Be sure to label each variance as favourable or unfavourable.
2. Think of a plausible explanation for the variances found in Requirement 1.
3. Determine the direct labour price and efficiency variances. Be sure to label each variance as favourable or unfavourable.
4. Could the explanation for the labour variances be tied to the material variances? Explain