variance analysis 461326
The plant manager decides that what is needed is an objective appraisal of what should be done. He hires
June Collins of Collins and Collins, CPAs. June recommends that the Charlotte plant should use standard cost
variance analysis. While not all three product managers agree that this is the best course of action the plant
manager makes the final decision and asks June to perform the analysis. June asks that the three product
managers aggregate their production information. The following schedule is the result of the request.
Variance Stated as Variance
Materials Price Variance Per ounce price Favorable
Materials Quantity Variance Ounce per unit Unfavorable
Labor Rate Variance Per hour Unfavorable
Labor Efficiency Variance Time per unit Favorable
1. Explain how each of the above variances could be explained.
2. Explain how the variances could explain the following situations: For instance: Inspection time increase
could be caused by either poor material leading to sub-quality products or using cheaper more
inexperienced labor. This would result in a favorable materials price variance and/or an unfavorable
labor efficiency variance indicating that the workers are taking too long to construct the product.
Each of the below situations are to be considered independent
Scrap Material decreased
Return Orders increased
Rework Time decreased
Average Unit Cost increased
Unexpected Downtime increased
Sales was less than budgeted
Volume-related revenue was less than anticipated (in this instance the company is selling