$7-25$ Budgeted, flexible, price and efficiency variances. $($Adapted from Cranfield University Case

Studies$)$ McKenzie Ltd produces chairs and employs three workers. The staff normally work $40$ hours per

week for $12$ per hour $($including social security$).$ It takes four hours for a worker to produce a cabinet: it

sells for $80$ and contains two square meters of timber, which costs $6\mathrm{.}00$ per square meter. Heating, rent,

and local taxes normally average $240$ per week.

One of the workers is ill and is away from work for one week. He gets no pay. During this week, the

other two workers work six hours overtime each for which they are paid at "time and a half" $($full payment

for an hour plus payment for half an hour$).$ They produce $25$ cabinets between them, which are sold for $84$

each. They use $55$ square meters of material at a price of $7\mathrm{.}00$ per square meter. The weather is extremely

cold that week and additional heating is required for the longer hours worked, so overhead costs increase

to $280.$

Prepare the budgeted, flexible, and actual performance for the week and compute the following

variances:

Direct material price variance

Material efficiency variance

Direct labor price variance

Manufacturing labor efficiency variance