Consider the four variances (1) Materials Price Variance, (2) Material Quantity Variance, (3) Labor Rate Variance, and (4) Labor Efficiency Variance. Answer the questions relating to each situation below.

 Situation A: One of Phoenix Company's full-time employees took an extended sick leave amounting to 160 hours. A temporary employee was hired at $14.50 an hour as a replacement.

i) Which of the 4 variances was impacted?

ii) Would the situation impact the variance Favorable or Unfavorable?

iii) Estimate of impact. 

b) Situation B: Power outages occurred three times during the year in which all production was shut down for 2 hours the first time, 3 hours the second time, and 1 hour the third time. During these times, 4 workers remained on site, but no work was performed.

i) Which of the 4 variances would this situation impact?

ii) Would the situation impact the variance Favorable or Unfavorable?

iii) Estimate of impact. 

c) Situation C: An order of raw material was received damaged, presumably during shipping. The order contained enough raw material to produce 200 finished goods. Upon inspection, 8% of the raw material was deemed contaminated and not usable.

i) Which of the 4 variances would this situation impact?

ii) Would the situation impact the variance Favorable or Unfavorable?

iii) Estimate of impact. 

d) Situation D: The purchasing department was able to negotiate a $1,200 discount from the supplier for the damaged order from c) above.

i) Which of the 4 variances would this situation impact?

ii) Would the situation impact the variance Favorable or Unfavorable?

iii) Estimate of impact.

e) Using the information for C and D, do you think purchasing did well with its negotiation of the discount?

Direct labor rate variance $79,455 Favorable/Unfavorable Unfavorable Direct labor efficiency variance $65,751 Favorable Total direct labor variance $13,704 Unfavorable