A. This answer is incorrect. Please see the correct answer for an explanation.

B. This is an example of price and quantity variances applied to a service business. To answer this question, we must work out both the price (rate) variance and the quantity (efficiency) variance. The price variance formula is (AP - SP) × AQ = Price Variance. The quantity variance formula is (AQ - SQ) × SP = Quantity Variance. Since these are cost items, a negative variance is a favorable variance (actual is lower than standard) and a positive variance is an unfavorable one (actual is higher than standard).

The Standard Quantity (SQ) is the standard for the number of hours to service 160 cars. The standard is .25 hours per car multiplied by 160 cars, which is 40 hours.

The Standard Price (SP) is given as $7 per hour.

The Price Variance is $19 unfavorable.

The Quantity Variance is ($14) favorable.

Whenever we have all of the values we need except one, we can set up a simple equation and solve for the missing variable. We have all of the values for the Quantity Variance formula except for AQ. So the first equation will be:

(AQ - 40) × 7 = (14)

7 AQ - 280 = (14)

7 AQ = 266

AQ = 38, and this is the actual hours worked.

Now, we can take that value for AQ and use it in the Price Variance formula to solve for AP:

(AP - 7) × 38 = 19

28AP - 266 = 19

38AP = 285

AP = 7.50, and this is the actual wage rate.

C. This answer results from solving the Quantity Variance formula for the variable AQ using a positive Quantity Variance in the formula instead of a negative one. The Quantity (Efficiency) Variance is favorable. Since it is a cost, a favorable variance is represented by a negative amount. Therefore, the Quantity Variance used in the formula should be negative. See the correct answer for a complete explanation.

D. This answer results from two errors: (1) Solving the Quantity Variance formula for the variable AQ using a positive Quantity Variance in the formula instead of a negative one. The Quantity (Efficiency) Variance is favorable. Since it is a cost, a favorable variance is represented by a negative amount. Therefore, the Quantity Variance used in the formula should be negative. And (2) Solving the Price Variance formula for the variable AP using a negative Price Variance in the formula instead of a positive one. The Price (Rate) Variance is unfavorable. Since it is a cost, an unfavorable variance is represented by a positive amount. Therefore, the Price Variance used in the formula should be positive. See the correct answer for a complete explanation.