Question

Please give real life examples for the reasons of materials quantity variance and labor efficiency variance. Explain who are responsible for these variances and why.

Answer 1

Material quantity variance:

Material quantity variance is the variance arising due to standard quantity of input allowed for actual output and actual input used in production process. If standard quantity allowed is lower than actual input consumed the variance is unfavorable and if standard quantity allowed is higher than actual quantity variance is favorable

Reasons for material quantity variances

· Low or high quality of material

· Incorrect specification of material

· Obsolescence of material

· Damages during handling

· Inefficiency in production process

· Lower machine speed

· Defectives in production process

The responsibility for material quantity variance is with production department. Production department is responsible because they should produce the output in accordance with bill of material which has standard specifications and production process is controlled by them.

Labor efficiency variance:

Labor efficiency variance is the variance arising due to standard hours allowed for actual production and actual hours used in production. If standard hours allowed are lower than actual hours the variance is unfavorable. If standard hours allowed are higher than actual hours the variance is favorable.

Reasons for labor efficiency variance:

· Labor fatigue and unrest

· Lower learning curve

· Lower skill levels

· Idle time caused by disruption

· Lower productivity levels of employees

The responsibility for labor efficiency variance is with production department. The deployment of labor in production process should be controlled by production team and ensure output is delivered as per standard requirements.