b) Calculate the sub-variances

c) Briefly discuss the above materials and labour variances and state how, in many respects, they are related

The overall materials variance is €2160 favorable. This can be further analyzed into materials price and materials usage. The materials price variance is €3,950 favorable. Ultimately the business was able to source cheaper materials than they budgeted for. In fact materials were 20% (0.03/0.15) less than the standard set in the budget. This is extreme variance and it questions the frequency of reviewing standards in the business.

The company also has an adverse materials usage variance of €1,800. This was due to using 10% more materials (12/120) than the standard required. While questioning the standard, one must also question whether the cheaper materials were lacking in quality and thus lead to more waste and an adverse usage variance. 

The labour cost variance is €4,050 negative. This can be further analysed into labour rate and efficiency. The labour rate is €2,550 due to the fact that the labour rate was 10% greater than the standard used in the budget. Management must assess was this due to an unforeseen event or due to the fact that the standard should have been reviewed prior to agreeing the budget.

The labour efficiency variance is €1,500 adverse reflecting the difference between the estimated hours worked in the budget to the actual hours worked. At a 1200 unit production run the standard hours set was 4,800. Actual hours worked was 5,100. This is an increase of 6.25%. This variance can also be related to the fact that cheaper materials were sourced. If these materials are inferior, they can result in increased waste not just in terms of materials but also labour time and thus lead to adverse labour efficiency variances.