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Variances Analysis: Corrective Action and Responsibility

As head plant manager, overseeing the entire production cycle, you have received a report from your accounting staff showing the results of your standard costing practices, shown below:

Materials Price Variance - 80,000 Favorable

Materials Quantity Variance - 60,000 Unfavorable

Labor Rate Variance - 75,000 Unfavorable

Labor Efficiency Variance - 90,000 Unfavorable

It is your job to bring these variances more in line so that the plant runs more efficiently and effectively. What are the first steps you take for corrective action, to whom do you address this variance problem, and why do you feel that they should be held responsible?

Your tutorial is 321 words and discusses what the variances might indicate, how they may be interrelated, and who you would ask about their potential causes. Several potential causes and questions are given to help you reason through the variance scenario.

Solution Preview

The first steps depend on where I think the problem resides. From looking at these variables, we notice a few things. Let's review them in order.
First, they are buying materials below standard prices (favorable material price variance) but using more than standard or wasting more than standard (unfavorable material quantity variance). Those two variances can be related (lower quality material with more defects causing more waste) or they may be unrelated.

Second, the labor ...

Solution Summary

Your tutorial is 321 words and discusses what the variances might indicate, how they may be interrelated, and who you would ask about their potential causes. Several potential causes and questions are given to help you reason through the variance scenario.

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