Question

Franklin Inc. reported the following variances: Direct materials price variance $ 0 Favorable Direct materials quantity variance $18,500 Unfavorable Direct labor rate variance $22,000 Favorable Direct labor efficiency variance $25,000 Unfavorable

Which of the following explanations is the most likely cause?

Group of answer choices The economy slowed, causing a decrease in demand, lower sales, and an increase in inventory. The sales manager decreased the selling price of the product, causing an increase in demand, a need to purchase raw material from new vendors, and the need for workers to work overtime. Human Resources hired lower quality labor at a cheaper price causing more defective products and slower production. The purchasing manager did not order enough raw materials, causing labor to be idle for much of the work week. The production manager inefficiently scheduled maintenance, causing laborers to sit idle and then need to work overtime in order to meet demand.

Answer 1

Solution:

Question; Which of the following explanations is the most likely cause?

Answer is: Human Resources hired lower quality labor at a cheaper price causing more defective products and slower production.

Explanation: Franklin Inc. has a Favorable Labor Rate Variance and a Unfavorable Labor Efficiency Variance, which clearly indiactes that the human resources hired unskilled labor at cheaper rates causing Favorable Labor Rate Variance and due to hiring of unskilled labor who are not efficient as skilled labor, they took more time for production than standard set causing an Unfavorable Labor Efficiency Variance.

Also due to inefficient unskilled labor, there were more defective products, requiring additional quantity of materials over and above the standard set, causing an Unfavorable Material Quantity Variance.

Thus, we can conclude that Human Resources hired lower quality labor at a cheaper price causing more defective products and slower production is the most likely cause for the variances reported of Franklin Inc.