The kiten of the Ambience Hotel in Australia’s Gold Coast has developed a strong local reputation for its pastries. It sells the pastries to carefully chosen bakeries and also through one of its restaurant outlets. At the beginning of the current financial year, the hotel’s management established the standard that it should take half an hour of labour time to produce 1 tray of pastries. It was also budgeted that labour should be paid at the rate of $14 per hour.

At the end of January, the performance report for the kitchen revealed that 120 hours had been worked by the pastry chefs. They were paid $1,440 and had produced 220 trays of pastries.

Required:

(a) Calculate the labour rate and efficiency variances. Indicate whether each variance is favourable or unfavourable.

(b) Comment on any adverse implications that may arise from a head chef paying particular attention on attaining favourable labour rate variances.