D101 - Unit 6

Manufacturing Overhead Efficiency Variance

(Standard Hours - Actual Hours) × Standard Rate

Labor Efficiency Variance

(Standard Hours- Actual Hours Worked) × Standard Rate

Labor Rate Variance

(Standard Labor Rate - Actual Labor Rate) × Actual Hours Worked

Materials Price Variance

(Standard Price - Actual Price) × Actual Quantity

Materials Quantity Variance

(Standard Quantity Allowed - Actual Quantity Used) × Standard Price

Manufacturing Overhead Spending Variance

(Standard Rate × Actual Hours Worked) - Actual Amount Paid

What is the formula for the labor rate variance?

Actual hours worked times the difference between the actual wage rate and the standard wage rate

Bicknello Noodle is experiencing much higher production costs than normal that are far above its standard. After investigating various possible causes, they have found that the main reason for high production costs is that the company is hiring many temporary employees, each of whom costs the company much more per hour than a normal full-time employee. Which variance should highlight this problem?

Labor rate variance The labor rate variance is calculated as the difference between the actual labor rate and the standard labor rate times the number of standard hours worked. When expensive temporary hires are working, the actual rate being paid those temporary workers would be higher than expected and should be highlighted by the labor rate variance.

What is a common cause for a labor efficiency variance?

Machinery breakdowns Some typical causes of labor inefficiency variances are absenteeism, machinery breakdowns, poor-quality materials, poor work environment, inadequate machinery, lack of employee skills on a given job, poor employee attitudes, lazy employees, and inaccurate standards.

Which variance should include an analysis of the indirect materials, indirect labor, utilities, and other miscellaneous manufacturing expenses when investigating why expenses are too high?

Manufacturing overhead spending variance It is the manufacturing overhead that is comprised of the miscellaneous production costs such as indirect materials, indirect labor, utilities, and depreciation, and so an analysis of why manufacturing overhead is too high would require looking at each of these individual expenses.

What is being calculated when the difference between the actual price and the standard price of materials is multiplied by the actual quantity purchased?

Materials price variance Actual price minus standard price multiplied by the actual quantity used is referred to as the materials price variance. This variance occurs when a lower or higher price from the standard is paid for materials.

When the difference between the actual quantity and the standard quantity is multiplied by the standard price, what is the result known as?

Materials quantity variance The materials quantity variance is calculated as the actual quantity minus the standard quantity times the standard price. This variance occurs when fewer or more materials are used than standard.

Which person or people should be directly responsible for a labor rate variance?

Production manager or hiring manager When labor is paid more than the standard rate, it is either the responsibility of production managers (probably because they have given excessive heavy overtime) or hiring managers (because they agreed to pay the employees more than the standard labor rate).

What could cause a materials quantity variance?

Purchase of substandard or unsuitable materials Materials quantity variances are usually caused by quality defects, poor workmanship, substandard or unsuitable materials, inexperienced workers, machines that need repairs, or an inaccurate quantity standard.

Which group is typically responsible for the materials price variance?

Purchasing department Materials price variances are usually under the control of the purchasing department.

What is the formula for the labor efficiency variance?

Standard wage rate times the difference between the actual hours worked and the standard hours worked

Which individuals should be directly responsible for the manufacturing overhead efficiency variance?

The manager responsible for the control of direct labor hours or the activity by which manufacturing overhead is assigned to products Because the variable manufacturing overhead efficiency variance does not describe the efficiency of using variable manufacturing overhead costs but instead reports the efficiency of how manufacturing allocation basis is used, the manager responsible for the control of direct labor hours or whatever activity measure is used to apply overhead is responsible for the manufacturing overhead efficiency variance; the variance is a measure of the efficiency with which direct labor is used.

Who is responsible for material price variance?

The purchasing agent purchased units

What is the actual amount spent on variable overhead minus the actual hours worked times the standard rate for variable overhead?

Variable overhead efficiency variance The variable overhead efficiency variance is calculated as the difference between the actual hours and standard hours times the standard rate per hour.

What is the term for the difference between the actual hours worked and the standard hours worked at the standard rate?

Variable overhead efficiency variance The variable overhead efficiency variance is calculated as the difference between the actual hours and standard hours times the standard rate per hour.

materials quantity variance

based on the quantity of materials used compared to the quantity that should have been used according to the standard. The amount is computed using the standard price.

Who is responsible for the material quantity variance?

production manager used units