Materials and Labour Variances Green Company manufactures diaries. The following standards have been established for notebooks' material and labour outputs: Standard Usage Standard Price Standard Cost Direct Materials (in lb) 2.51 $7.00 $17.50 Direct Labour (in hours) 0.31 $25.00 $8.00 During the first week of July, the company had the following results: Units Produced Actual Labour Cost Actual Labour Hours Material Purchased and Used Material Purchase Price 1500 pcs $7,500.00 250 hours 3200 $7.20 Additional Information The purchasing agent found the new source of material and it was used during the first week of July. Also, a new menufacturing layout was implemented but still on a trial basis. The new layout required a higher level of skilled labour and the new material has no effect on labour utilization. The new manufacturing layout also has no effect on material usage. Required: 1. Compute the materials price and usage variances. Would you recommend the purchasing agent continue to buy from the new source or should the usual quality of materials should be purchased? Why? (assume that the quality of the ending products are not affected significantly) 2. Compute the labour rate and efficiency variances. Should the new manufacturing layout be continued or discontinued? explain. 3. Suppose that the industrial engineer argued that the new manufacturing layout needed more time to be evaluated. His reasoning was that it would take at least a week for the workers to be more used to the new technological approach. Suppose that the production is still the same with the first week and the actual labour hours were 210 and the labour cost was $5,200. Should the new layout be adopted? If yes, what would be the projected annual savings