Early in September of this year, Jose Company\'s long-time supplier, the Lanae C

Question

Early in September of this year, Jose Company's long-time supplier, the Lanae Company, was closed unexpectedly because of a labor strike. Jose was forced to seek a backup supply source. After considerable delay, raw materials were obtained, but they were of significantly lower quality than those Lanae provided, and they were more expensive because of special handling required to rush the orders. The delay created an unusual increase in idle time during the month; and once production resumed, the poor quality raw materials produced reductions in labor and machine productivity and increases in materials waste. Noticing a decline in employee morale, the plant manager decided to provide a company-sponsored employee picnic at the end of the month. By the beginning of October, Lanae Company employees were back to work and Jose's operations were back to normal.

Required:
Identify factors from the problem that would likely cause the Jose Company to experience unfavorable variances. Indicate which of the following variance(s) was most likely affected by the factors identified in your answer.

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Materials price variance

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Materials quantity variance

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Labor efficiency variance

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Variable overhead spending variance

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Variable overhead efficiency variance

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Fixed overhead budget variance

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Materials price variance

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Materials quantity variance

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Labor efficiency variance

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Variable overhead spending variance

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Variable overhead efficiency variance

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Fixed overhead budget variance

Explanation / Answer

1. Since the material were more expensive, there would be unfavourable material price variance.

2. As the quality of the material purchased was of lower qaulity, there would be unfavourable material quantity variance.

3.The delay in btaining the supply would result in unfavourable labor efficiency variance.

4. The unfavourable labor ifficiency will lead to unfavourable variable overhead efficiency valriance.

5. Finally the cost incurred by the plant manager to roganize the picnic, to boot the morale of the employees will lead to an unfavourable fixed overhead budget variance.

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