Question

1) What is a quantity standard? What is a price standard?

2) Why are separate price and quantity variances computed?

3) Who is generally responsible for the materials price variance? The materials quantity variance? The labor efficiency?

5) If the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?

7) "Our workers are all under labor contracts; therefore, our labor rate variance is bound to be zero." Discuss.

8) What effect, if any, would you expect poor-quality materials to have on direct labor variances?

Answer 1

1.) Quantity Standard is the amount of material that should be used in the production of single unit. Price Standard is the price that should be paid for materials at given level of material.

2.) Separate Price and Quantity Variances are computed because there is different managers in charge for different activities. in case of Price variance exists then production manager should be held responsible for difference between actual price and standard price. and in case of Quantity variance exists then be can held responsible for purchase manager as they are responsible for purchase of goods at standard price, engineering department as they are responsible for production of used material. other factor also held responsible in case of quantity variance like scrap, spoliage etc.

3.) Purchasing manager are generally held responsible for material price variance.

Production managers and supervisors are held responsible for material quantity variance.

Production managers are held responsible for labor efficiency.

5.)   This combination might be result of purchase of material at lower price at the cost of low quality of the material. its result on production of the material that will be not better in quality.

7.) " our workers are all under labor contract '; our labor rate variance is bound to be zero." The Labor rate variance will not be zero, as there are many things that can be result in variance. Example are as follows -

* Skilled workers are results highly pay, Resulting in an unfavorable labor rate variance

* Unskilled worker resulting production of the units produced.

* How efficient The Way labor are used to production the produced by the manager.

8.) in this case given in point no 8 - if poor quality used than more labor hours taken for completing the unit and therefor unfavorable direct labor variance.