In: Finance
1. Please list some of the problems companies have when computing unfavorable material and labor price and rate variances. What would be the cause of an unfavorable rate or volume variance? What would be the cause of an unfavorable price or efficiency variance?
Material Variance is computed as Standard cost of materials to be used- Actual cost of material used. If this turns out to be positive, then Material Variance is said to be favourable and if it is negative then it is referred as Unfavourable.
Similarly Labour Variance is computed as Standard cost of labour to be used- Actual cost of labour used. If this turns out to be positive, then Material Variance is said to be favourable and if it is negative then it is referred as Unfavourable.
Both of these above variance are further broken down into Rate and Volume Variances.