Efficiency variance direct manufacturing labor pesos

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Efficiency variance Direct Manufacturing Labor Pesos 784,420 (26,000 × Peso 29.25) Pesos 760,500 (340,000 × (2/60) × Peso 29.25) Pesos 331,500 Pesos 23,920 U Pesos 429,000 U Price variance Efficiency variance 2. If union organizers are targeting our plant, it could suggest employee dissatisfaction with our wage and benefits policies. During this time of targeting, we might expect employees to work more slowly and they may be less careful with the materials that they are using. These tactics might be seen as helpful in either organizing the union or in receiving increases in wages and/or benefits. We should expect unfavorable efficiency variances for both wages and materials. We may see an unfavorable wage variance, if we need to pay overtime due to work slowdowns. We do, in fact, see a substantial unfavorable materials quantity variance, representing a serious overuse of materials. While we may not expect each bottle to use exactly 15 oz. of materials, we do expect the shrinkage to be much less than this. Similarly, we see well over double the number of hours used relative to what we expect to make and fill this number of bottles. They are able to produce just over 13 bottles per hour, instead of the standard 30 bottles per hour. It is plausible that this waste & inefficiency are either caused by, or are reflective of the reasons behind the attempt to organize the union at this plant.
7-5 7-34 Material cost variances, use of variances for performance evaluation 1. Materials Variances Actual Costs Incurred (Actual Input Quantity × Actual Price) Actual Input Quantity × Budgeted Price Flexible Budget (Budgeted Input Quantity Allowed for Actual Output × Budgeted Price) Direct Materials (8,400 × $19 a ) $159,600 Purchases Usage (8,400 × $22) (7,900 × $22) $184,800 $173,800 (800 × 8 × $22) (6,400 × $22) $140,800 $25,200 F $33,000 U Price variance Efficiency variance a $159,600 ÷8,400 = $19 2. The favorable price variance is due to the $3 difference ($22 – $19) between the standard price based on the previous suppliers and the actual price paid through the on-line marketplace. The unfavorable efficiency variance could be due to several factors including inexperienced workers and machine malfunctions. But the likely cause here is that the lower-priced titanium was lower quality or less refined, which led to more waste. The labor efficiency variance could be affected if the lower quality titanium caused the workers to use more time. 3. Switching suppliers was not a good idea. The $25,200 savings in the cost of titanium was outweighed by the $33,000 extra material usage. In addition, the $33,000U efficiency variance does not recognize the total impact of the lower quality titanium because, of the 8,400 pounds purchased, only 7,900 pounds were used. If the quantity of materials used in production is relatively the same, Better Bikes could expect the remaining 500 lbs to produce approximately 50 more units. At standard, 50 more units should take 50 × 8 = 400 lbs. There could be an additional unfavorable efficiency variance of (500 × $22) (50 × 8 × $22) $11,000 $8,800 $2,200U 4. The purchasing manager’s performance evaluation should not be based solely on the price variance. The short-run reduction in purchase costs was more than offset by higher

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