Continuing Case: Cookie Company C6.In this segment of our continuing case, assum

Question

Continuing Case: Cookie Company

C6.In this segment of our continuing case, assume that you have been using standard costing to plan and control costs at your cookie store. In a meeting with your budget team, which includes managers and employees from the Purchasing, Product Design, and Production departments, you ask all team members to describe any operating problems they encountered in the last quarter. You explain that you will use this information to analyze the causes of significant cost variances that occurred during the quarter. For each of the following situations, identify the direct materials and/or direct labor variance (s) that could be affected, and indicate whether the variances are favorable or unfavorable: 1. The production department uses highly skilled, highly paid workers. 2. Machines were improperly adjusted. 3. Direct labor personnel worked more carefully than they had in the past to manufacture the product. 4. The Product Design Department replaced a direct material with one that was less expensive and of lower quality. 5. The Purchasing Department bought higher-quality materials at a higher price. 6. A major supplier used a less-expensive mode of transportation to deliver the raw materials. 7. Work was halted for 2 hours because of a power failure.

Explanation / Answer

1.labour variance will be used as it involves direct involvement of Labour skills- favourable

2.When machines are improperly adjusted, there would be wastage of both labour and material, so the need to evaluate for material and labour variance arises-Unfavourable

3.Labour Variance - favourable

4.Material variance shall be used - Unfavourable

5.Material Variance - Unfavourable

6.Material Variance - Favourable

7.Labour Variance - Unfavourable , since it will lead to Idle time

5

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