Generico Ltd. uses an injection device to regulate the flow of raw materials into moulds in its production process. When the injector device is “out of control,” the entire production line must be shut down.The production data for the past month indicated an unfavourable raw material cost variance as follows:

Budgeted production volume..................................................................40,000 units

Actual production volume.......................................................................39,000 units

Budgeted raw materials (40,000 × 2 grams @ $10 per gram)..........$ 800,000

Actual raw materials (39,000 ×2.2 grams @ $12 per gram).............1,029,600

Variance (unfavourable)....................................................................$ 229,600

The variance was either caused by the injector device being out of control or by random factors that would disappear on their own. The production manager must decide whether to shut down production to investigate the cause of the variance or wait another month.

Data regarding investigation of the cause of the variance are as follows:

Cost to inspect injector device (10 hours @ $300)....................................$3,000

Cost to repair injector device (20 hours @ $300)......................................$6,000

Lost contribution margin during downtime.................................................$1,000 per hour

Based on past experience, there is a 10% chance that the injector device is out of control. If it is out of control and not corrected right away, the net cost to the company until the next regularly scheduled maintenance adjustment will be $90,000.

Which of the following represents the materials efficiency variance?

a. $ 93,600 unfavourable

b. $ 69,600 unfavourable

c. $ 78,000 unfavourable

d. $ 58,000 unfavourable

e. $156,000 unfavourable