You’re most likely to run into an unfavorable materials quantity variance because of one of the following issues.
- Abnormal spoilage. …
- Inadequately trained workers. …
- Inaccurate standard material quantity. …
- Estimate the standard material quantity. …
- Determine the actual material quantity.
What are some possible causes of a material quantity variance?
If there is a material quantity variance, one or more of the following is usually the cause:
- Low quality of raw materials.
- Incorrect specification of materials.
- Raw materials obsolescence.
- Damage in transit to the company.
- Damage while being moved or stored within the company.
- Damage during the production process.
What is unfavorable quantity variance?
If the actual quantity used is greater than the standard quantity, the variance is unfavorable. This means that the company has used excessive materials in producing its output. The excessive use of materials may be due to several reasons.
Which of the following Cannot be a reason for unfavorable direct materials quantity variance?
10 per hour and the direct labor rate variance amounted toRs. 450 favorable.
…
| Q. | which of the following cannot be a reason of unfavorable direct materials price variance? |
|---|---|
| B. | Quality of materials purchased |
| C. | Appointment of inexperienc |
| D. | workers D Inefficient standard setting |
| Answer» c. Appointment of inexperienc |
What causes favorable and unfavorable variances?
Favorable and unfavorable variances can be caused by a wide range of factors, including errors in the original budget (i.e., faulty calculations, bad data, etc.), changes in business conditions (i.e., economic downturn, new competitor entering the market, etc.), or simply exceeding/underperforming with regard to …
How do you increase unfavorable variance?
When coming up with the next steps for larger variances, consider:
- Adjusting your budget to be more realistic.
- Reconsidering your projected revenue by changing your prices, volumes or sales process.
- Increasing your customer demand by changing your product or increasing your marketing budget.
What is a favorable variance and what is an unfavorable variance?
A favorable budget variance refers to positive variances or gains, an unfavorable budget variance describes negative variance, indicating losses or shortfalls. Budget variances occur because forecasters are unable to predict future costs and revenue with complete accuracy.
What might an unfavorable price variance for direct materials indicate?
Total Direct Materials Cost Variance
An unfavorable outcome means the actual costs related to materials were more than the expected (standard) costs. If the outcome is a favorable outcome, this means the actual costs related to materials are less than the expected (standard) costs.
What is an unfavorable variance quizlet?
unfavorable variance. variance that has the effect of decreasing operating income relative to the budgeted amount.
What are the causes of material variance suggest two corrective courses of action for each material variance?
- Causes of material variances. Variance. Favourable. Adverse. Material Price. •Poorer quality. materials. …
- Causes of labour variances. Variance. Favourable. Adverse. Labour rate. •Lower skilled staff. •Cut in. …
- Causes of variable overhead variances. Variance. Favourable. Adverse. Var. o/h expenditure •Unexpected saving. in cost of services.
How can favorable and unfavorable variances be communicated?
After the period is over, management will compare budgeted figures with actual ones and determine variances. If revenues were higher than expected, or expenses were lower, the variance is favorable. If revenues were lower than budgeted or expenses were higher, the variance is unfavorable.
Which of the following would be the most likely cause of an unfavorable labor rate variance?
The correct answer is c) The mix of workers assigned to the particular job was heavily weighted towards the use of higher-paid, experienced…
What does it mean to have a Favourable variance?
A favourable variance is where actual income is more than budget, or actual expenditure is less than budget. This is the same as a surplus where expenditure is less than the available income.
Which of the following departments is generally responsible for an unfavorable materials price variance?
Purchasing. The purchasing department should ordinarily be held responsible for an unfavorable materials price variance because that department ordinarily has most control over the price.
What do you think are the causes behind an unfavorable fixed overhead budget variance?
The main causes of an unfavorable fixed overhead spending variance include the following: The business expansion carried out during the period that was not planned at the time of setting budgets. Increase in one or more overhead expenses during the period. … Wastage and inefficiencies in the management of fixed overhead.
Should managers only investigate unfavorable variances?
Also, by focusing solely on unfavorable variances, managers might overlook problems that may result from favorable variances. Another approach might be to investigate all favorable and unfavorable variances above a certain minimum level, calculated as a percent of the flexible budget amount.
Why Favourable material price variance does not necessarily indicate good performance?
The Basis for a Favorable Variance
Obtaining a favorable variance (or, for that matter, an unfavorable variance) does not necessarily mean much, since it is based upon a budgeted or standard amount that may not be an indicator of good performance.
Why might a favorable materials price variance cause an unfavorable labor efficiency variance?
The variance is unfavorable because more materials were used than the standard quantity allowed to complete the job. If the standard quantity allowed had exceeded the quantity actually used, the materials usage variance would have been favorable.
What might an unfavorable price variance for direct materials indicate Mcq?
less than anticipated normal wastage in the manufacturing process.
What is the difference between a favorable cost variance and an unfavorable cost variance quizlet?
A favorable variance has a result of increasing operating income relative to the budgeted amount. An unfavorable variance has a result of decreasing operating income relative to the budgeted amount.
Which of the following may be the result of an unfavorable flexible budget variance for variable costs?
Answer: FALSE Explanation: An unfavorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted.
What does a favorable direct materials price variance indicate?
A favorable DM price variance occurs when the actual price paid for raw materials is less than the estimated standard price. It could mean that the firm’s purchasing department was able to negotiate or find materials with lower cost.
What causes unfavorable labor efficiency variance?
If estimated labor costs are lower than they should be due to unreliable historical trends, inherent employee bias or any other reason, actual labor prices may be significantly higher, causing an unfavorable variance from the budgeted amount.
What causes overhead variances?
The variable overhead efficiency variance is driven by the difference between the actual hours worked and the standard hours expected for the units produced. There are two fixed overhead variances. One is caused by spending too much or too little on fixed overhead.
What causes material and Labour variance?
This variance results from differences between quantities consumed and quantities of materials allowed for production and from differences between prices paid and prices predetermined.
How do you know if a flexible budget variance is favorable or unfavorable?
If the actual results cause net income to be higher than budgeted net income (such as more revenues than budgeted or lower than budgeted costs), the variance is favorable. If actual net income is lower than planned (lower revenues than planned and/or higher costs than planned), the variance is unfavorable.
Is Favourable variance always good?
We express variances in terms of FAVORABLE or UNFAVORABLE and negative is not always bad or unfavorable and positive is not always good or favorable. … A FAVORABLE variance occurs when actual direct labor is less than the standard.
What are the disadvantages of variance analysis?
As mentioned, variance analysis requires companies to go through a lengthy process. It can translate to higher costs for companies. The process of calculating variances, investigating and then reporting them is complicated. Companies must use professional employees to complete the process and come back with results.
What does an unfavorable direct labor efficiency variance mean who is held responsible?
An unfavorable direct labor efficiency variance indicates that. the total actual hours are higher than the standard hours.
Which of the following is a possible cause of an unfavorable labor efficiency variance quizlet?
a. An unfavorable labor efficiency variance can be caused by machine downtime, and poor quality materials.
What is favorable and unfavorable?
Favorable. Favorable variances are defined as either generating more revenue than expected or incurring fewer costs than expected. Unfavorable variances are the opposite. Less revenue is generated or more costs incurred. Either may be good or bad, as these variances are based on a budgeted amount.
Why is the identification of favorable and unfavorable variances so important to a company?
Profit. A company’s revenue variance may affect its profit and cash flow. … If a favorable revenue variance coincides with higher expenses, it could indicate a loss. Conversely, if an unfavorable revenue variance coincides with lower expenses, it could indicate a profit.
What are the reasons for material price variance?
Causes of the Materials Price Variance
Market-driven pricing changes, such as changes in the prices of commodities. Bargaining power changes by suppliers, who may be able to impose higher prices than expected. Buying in unusually large or small volumes in comparison to what was expected when the standard was created.
Who is responsible for Unfavourable labor efficiency variances caused by poor quality materials?
The materials price variance is usually the responsibility of the purchasing manager. The materials quantity and labor efficiency variances are usually the responsibility of production managers and supervisors. The materials price variance can be computer at what two different points in time?
Which of the following situations is likely to cause an adverse material usage variance?
Reasons for adverse material usage variance include: Purchase of materials of lower quality than the standard (this will be reflected in a favorable material price variance). Use of unskilled labor. Increase in material wastage due to depreciation of plant and equipment.