In this segment of our continuing case, assume that you have been using standard

Question

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.

The production department uses highly skilled, highly paid workers.

Machines were improperly adjusted.

Direct labor personnel worked more carefully than they had in the past to manufacture the product.

The Product Design Department replaced a direct material with one that was less expensive and of lower quality.

The Purchasing Department bought higher-quality materials at a higher price.

A major supplier used a less-expensive mode of transportation to deliver the raw materials.

Work was halted for because of a power failure.

Explanation / Answer

1 Where machines were improperly adjusted, Machine hour time increases material loss increases due to improper functioning of machines, and thereby labour hours get increased Hence, Matarial variance= unfavourable Labour variance= Unfavourable 2 Direct labor personnel worked more carefully than they had in the past to manufacture the product. Due to this, efficiency and productivity of labor increases However, labor work hours also get increased due to increased focus and care on operations Hence, Matarial variance= favourable Labour variance= Unfavourable 3 The Product Design Department replaced a direct material with one that was less expensive and of lower quality Material cost reduces due lower quality Hence, Matarial variance= favourable Labour variance=No Change 4 The Purchasing Department bought higher-quality materials at a higher price. Material cost increases due higher quality Hence, Matarial variance= unfavourable Labour variance=No Change 5 A major supplier used a less-expensive mode of transportation to deliver the raw materials. This reduces material cost Hence, Matarial variance= favourable Labour variance=No Change 6 Work was halted for because of a power failure. Due to this skilled labour hours get wasted and lead to unnecessary excessive payment Hence, Matarial variance=No change Labour variance=Unfavourable

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