Possible causes for price and efficiency variances. You have been invited to int
ID: 2512524 • Letter: P
Question
Possible causes for price and efficiency variances. You have been invited to interview for an internship with an international food manufacturing company. When you arrive for the interview, you are given the following information related to a fictitious Belgian chocolatier for the month of June. The choco- latier manufactures truffles in 12-piece boxes. The production is labor intensive, and the delicate nature of the chocolate requires a high degree of skill. Actual Boxes produced Direct materials used in production Actual direct material cost Actual direct manufacturing labor-hours Actual direct manufacturing labor cost 10,000 2,150,000 g 60,200 euro 1,100 12,650 euro Standards Purchase price of direct materials Materials per box Wage rate Boxes per hour 0.03 euro/g 200 g 12 euro/hour 10 Please respond to the following questions as if you were in an interview situation Calculate the materials efficiency and price variance and the wage and labor efficiency variances for the month of June. Discuss some possible causes of the variances you have calculated. Can you make any possible connection between the material and labor variances? What recommendations do you have for future improvement? 1. 2.Explanation / Answer
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10000 Standard Actual at Standard Actual Quantity/Hour Per Unit Rate Value Quantity/Hour Rate Value Quantity/Hour Rate Value Direct Material 200 0.03 6 2000000 0.03 60000 2150000 0.028 60200 Direct Labor 0.1 12 1.2 1000 12 12000 1100 11.50 12650 Total 72000 72850 1 a. Direct Material Price Variance AQ(AP-SP) Total Direct Material Price Variance 2150000(0.028-0.03) 4300 F b. Direct Material Quantity Variance SP(AQ-SQ) Total Direct Material Quantity Variance 0.03(2150000-2000000) 4500 U c. Direct Labor Rate Variance AH(AR-SR) Total Direct Labor Rate Variance 1100(11.50-12) 550 F d. Direct Labor efficiency Variance SR(AH-SH) Total Direct Labor Efficiency Variance 12(1100-1000) 1200 U 2. Causes of Variance: Efficiency Variance is Unfavorable, can be caused by Skill of labor, availability of labor Since Labor efficiency is unfavorable, Material Quantitiy is also unfavorable because inefficient labor cause lot more waste of material. First target should be to hire some skilled workers