Question

Exercise 25-13 (Essay)

Ceelo Company purchased (at a cost of $10,200) and used 2,400 pounds of materials during May. Ceelo’s standard cost of materials per unit produced is based on 2 pounds per unit at a cost $5 per pound. Production in May was 1,050 units.

The total, price, and quantity variances for materials are as follows:

Total Materials Variance		$300	Favorable
Materials Price Variance		$1,800	Favorable
Materials Quantity Variance		$1,500	Unfavorable

(b)

Assume Ceelo also had an unfavorable labor quantity variance. What is a possible scenario that would provide one cause for the variances given above and the unfavorable labor quantity variance?

Answer 1

Unfavorable Material Quantity variancevmeans actual usage of material is more than the standard material allowed.

It may occur due to many reasons.

Some of them are:

(i)Machinery is outdated

(ii)Due to purchase of not suitable material

(iii)Lack of experience to workers

(iv)Lack of supervision properly

Unfavorable labour quantity variance Or Labour efficiency variance:

It occurs due to Deviation in working hours from Standard working hours.

LaborLefficiency if divided into:

Idle time

Labour mix

Labour yield

Some of the reasons for unfavorable are:

(i)Low quantity materials

(ii)Poor production schedule

(iii)Improper production methods

(iv)Chances of short supply of materials