The following information pertains to Nell Company’s production of one unit of its manufactured product during the month of June. The company recognizes the materials price variance when materials are purchased:

Standard quantity of materials........................................................................................5 kg

Standard cost per kilogram......................................................................................$0.20

Standard direct labour hours.......................................................................................0.4 hr

Standard wage rate per hour...................................................................................$7.00

Direct materials purchased..................................................................................100,000 kg

Cost of direct materials purchased per kilogram.....................................................$0.17

Direct materials consumed for manufacture of 10,000 units.................................60,000 kg

Actual direct labour hours required for 10,000 units................................................3,900

Actual direct labour cost per hour............................................................................$7.20

Required:

A. Calculate the price and efficiency (quantity) variances for materials and labour.

B. Record the journal entries for purchase and use of direct materials, and the journal entries for direct labour.

C. Provide one possible explanation for each variance.