7-26Price and efficiency variances.Modern Tiles Ltd. manufactures ceramic tiles. For January 2017, it budgeted to purchase and use 10,000 pounds of clay at $0.70 a pound. Actual purchases and usage for January 2017 were 11,000 pounds at $0.65 a pound. Modern Tiles Ltd. budgeted for 40,000 ceramic tiles. Actual output was 43,000 ceramic tiles.

Required:

1.Compute the flexible-budget variance.

2.Compute the price and efficiency variances.

3.Comment on the results for requirements 1 and 2 and provide a possible explanation for them.