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Possible causes for price and efficiency variances

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You are a student preparing for a job interview with a Fortune 100 consumer products manufacturer. You are applying for a job in the Finance Department. This company is known for its rigorous case-based interview process. One of the students who successfully obtained a job with them upon graduation last year advised you to "know your variance cold" When you inquired further, she told you that she had been asked to pretend that she was investigating wage and materials variances. Per her advice, you have been studying the causes and consequences of variances. You are excited when you wak in and find that the first case deals with variance analysis. you are given the following data for May for the detergent bottling plant located in Mexico:

Bottles filled - 360,000
diret materials used in production - 6,000,000ozs
Actual direct material cost - 2,125,000 pesos
Actual direct manufacturing labor-hours - 22,040 hours
Actual direct labor cost - 664,940 pesos

Purchase price of direct materials - .35 pesos/oz
Bottle size - 15oz
Wage rate - 29.30 pesos/hour
Bottle per minute - .50

Please respond to the following questions as if you were in an interiew situation:

1) Calculate the materials efficiency and price variance, and the wage and labor efficiency variances for the month of May.

2) You are given the following context: "Union organizers are targeting our detergent bottling plant in Puebla, Mexico for a union. Can you provide a better explanation for the variances that you have calculated on the basis of this information?

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Solution Summary

In this solution, which is provided in an Excel document, calculations for materials efficiency and price variance, as well as wage and labor efficiency variances are given.

See Also This Related BrainMass Solution

Compute the materials and labor variances and list reasons for unfavorable variances

The following direct materials and direct labor data pertain to the operations of Batista Manufacturing Company for the month of August.

Costs Quantities
Actual labor rate $13 per hour Actual hours incurred and used 4,250 hours
Actual materials Actual quantity of materials
price $128 per ton purchased and used 1,250 tons
materials price $130 per ton Standard quantity of
materials used 1,200 tons


a. Compute the total, price, and quantity variances for materials used and labor.
b. Provide two possible explanations for each of the unfavorable variances calculated above, and suggest where responsibility for the unfavorable result might be placed.

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