Indicate if the following item will affect one or more of the material or labor
ID: 2598004 • Letter: I
Question
Indicate if the following item will affect one or more of the material or labor cost variances. Further, indicate if each such cost variance will be favorable or unfavorable. Your company has recently switched to a new supplier makes delivery at a higher freight rate; however, the parts are significantly better in quality than before, resulting in less breakage of material. Select one or more: a. Farovable material quantity variance a b. Unfavorable material quantity variance c. Favorable labor efficiency variance d. Unfavorable labor rate variance e. Favorable labor rate variance f. Unfavorable labor efficiency variance g. Unfavorable material price variance h. None of the other responses is applicableExplanation / Answer
1.Purchase from new vendor will have higher freight cost and therefore the total price of the materials purchased will be higher than the old one. As a result there will be unfavorable material price variance. However, parts will be better and will lead to less breakage which means that the less materials quantity will be used than the old ones. As result, there will be favorable material quantity variance.
2. Senior level employees charge much higher wages than the line workers, and therefore there will be unfavorable Labor rate variance due to higher charge in wages as compared to line workers. Moreover, these employees are much faster than the line workers and therefore, will complete the work in less time than the line workers. Therefore, there will be favorable Labor efficiency variance.
3. Due to production training, employees will use less materials than before and therefore, there will be favorable impact on material quantity variance. Favorable Material Quantity Variance
4. Increasing rates of electricity and gas has unfavorable impact on manufacturing overheads of the company and therefore, there is no impact on either labor variance or material variance. Answer is C. None of the other responses applicable.