Question 2: (40 marks)

Horton Company manufactures paint pens. The following unitary standards have been set by the production staff and the controller:

Direct Material:	Direct Labor:
Quantity, 0.4 Liters	Quantity, 0.2 hour
Price, $4.5 per Liter	Price, $6 per hour

Actual costs incurred in the production of 10,000 paint pens were as follows:

Direct Material:	$13,500 for 4,500 Liters
Direct Labor:	$14,400 for 1,800 hours

Required:

1- Using the variance formulas to compute the direct-material and labor variances. Indicate whether each variance is favorable or unfavorable.(30 marks)

2- Mention at least 3 reasons why each of these variances may have occurred. (10 marks)