1. Please list some of the problems companies have when computing unfavorable material and labor price...

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?

Expert Solution

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.

Unfavourable Material Rate Variance is caused where Actual Rate per unit of raw material exceeds Standard rate per unit of raw material. Unfavourable Material Efficiency variance is caused where Actual material used per one unit of output exceeds standard material which shall be used per unit of output.
Unfavourable Labour Rate Variance is caused where Actual Rate per unit of Labour exceeds Standard rate per unit of Labour. Unfavourable Labour Efficiency variance is caused where Actual Labour used per one unit of output exceeds standard labour which shall be used per unit of output.

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