10–1 What is a quantity standard? What is a price standard? 10–2 Why are separat
ID: 2583221 • Letter: 1
Question
10–1
What is a quantity standard? What is a price standard?
10–2
Why are separate price and quantity variances computed?
10–3
Who is generally responsible for the materials price variance? The materials quantity variance? The labor efficiency variance?
10–4
The materials price variance can be computed at what two different points in time? Which point is better? Why?
10–5
If the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?
10–6
Should standards be used to identify who to blame for problems?
10–7
“Our workers are all under labor contracts; therefore, our labor rate variance is bound to be zero.” Discuss.
10–8
What effect, if any, would you expect poor-quality materials to have on direct labor variances?
Explanation / Answer
Answer 10-1
Quantity Standard is the “should-be” quantity used in the production. It is no of units of raw materials that an organization would like to use to produce per unit of their product at a given level of activity.
Price Standard is the “should-be” price that’s paid for purchasing the raw materials. It is the price that management wishes to pay to procure the materials keeping in mind the budget constraints of the company and quality of raw materials.
Answer 10-2
Price & Quantity variances occur when the cost of production increases than what was projected at a given activity level. So, the management would always like to what went wrong and where. They would like to know, whether the materials were purchased at a higher rate or was it that the purchased raw materials were not used efficiently, which resulted in an over-budget situation.
Answer 10-3
The responsibility of Material Price variance rests with the purchasing or the procurement department. It is their responsibility to procure best quality raw materials at the cheapest price possible.
Production managers and supervisors are responsible for materials quantity variance & labor efficiency variance. They need to make sure that the production happens with minimum wastage and labor works efficiently with full devotion.
Answer 10-4
The material price variance can be calculated at two point of time, namely:
But, the first one makes more sense and is more followed because of the following reasons:
Answer 10-5
If there is no price variance, but quantity variance, it means either of the two reasons:
Answer 10-6
Standards and variances could be used to identify the root of problem, but directly blaming the responsible, could result in resentment and lower morale. Doing this could even worsen the future. Rather, if possible, management should try to modify their standard for the coming production cycles.
Answer 10-7
At times, Contracted labor can also result in labor rate variances due to:
Answer 10-8
If poor quality of materials were purchased, it could also create production problems, like excessive labor time and therefore an unfavorable labor efficiency variance. Poor quality materials would not ordinarily affect the labor rate variance, but the workers might have to spend extra time to make the best possible use of low quality materials to produce optimal quality product.
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