True or False: It is possible to have a situation where the direct labor rate variance is favorable and the direct labor efficiency variance is unfavorable.

The scenario described in the question is indeed possible, which makes the statement true.

In cost accounting, the direct labor rate variance measures the difference between the actual wage rate paid and the standard wage rate multiplied by the actual hours worked. A favorable direct labor rate variance occurs when the actual rate paid is less than the standard rate, resulting in cost savings.

On the other hand, the direct labor efficiency variance looks at the difference between the actual hours worked and the standard hours allowed for the actual output, multiplied by the standard rate. An unfavorable direct labor efficiency variance occurs when more hours are used than the standard allows for the level of production achieved.

These two variances can occur simultaneously if a company is able to pay its workers a lower rate (leading to a favorable rate variance) but, at the same time, is experiencing inefficiencies in the production process that result in higher hours worked than planned (leading to an unfavorable efficiency variance). Such situations can arise due to various factors, such as increased production complexity, machine breakdowns, or lack of worker training, which can all contribute to lower productivity even while labor costs are managed effectively.

Thus, this situation highlights the importance of monitoring both variances separately to understand the overall efficiency and cost management strategies