Question

C6. In this segment of our continuing case, assume that you have been using standard
costing to plan and control costs at your cookie store. In a meeting with your budget
team, which includes managers and employees from the Purchasing, Product Design,
and Production departments, you ask all team members to describe any operating problems
they encountered in the last quarter. You explain that you will use this information
to analyze the causes of significant cost variances that occurred during the quarter.
For each of the following situations, identify the direct materials and/or direct labor
variance(s) that could be affected, and indicate whether the variances are favorable or
unfavorable.
1. The production department uses highly skilled, highly paid workers.
2. Machines were improperly adjusted.
3. Direct labor personnel worked more carefully than they had in the past to manufacture
the product.
4. The Product Design Department replaced a direct material with one that was less
expensive and of lower quality.
5. The Purchasing Department bought higher-quality materials at a higher price.
6. A major supplier used a less-expensive mode of transportation to deliver the raw
materials.
7. Work was halted for 2 hours because of a power failure.

Answer 1

		Variance(s)	Favorable/Unfavorable
1	The production department uses highly skilled, highly paid workers.	Labor rate variance	Unfavorable
		Labor efficiency variance	Favorable
2	Machines were improperly adjusted.	Materials quantity variance	Unfavorable
		Labor efficiency variance	Unfavorable
3	Direct labor personnel worked more carefully than they had in the past to manufacture the product.	Labor efficiency variance	Unfavorable
4	The Product Design Department replaced a direct material with one that was less expensive and of lower quality.	Materials price variance	Favorable
		Materials quantity variance	Unfavorable
5	The Purchasing Department bought higher-quality materials at a higher price.	Materials price variance	Unfavorable
		Materials quantity variance	Favorable
6	A major supplier used a less-expensive mode of transportation to deliver the raw materials.	Materials price variance	Favorable
7	Work was halted for 2 hours because of a power failure.	Labor efficiency variance	Unfavorable