Question

Thoroughly explain the possible reasons for the following variances:

Favorable materials price variance

Unfavorable materials quantity variance

Unfavorable labor rate variance

Unfavorable labor efficiency variance

Answer 1

Solution

Variance	Reason for Variance
Favorable materials price variance	The actual price of material is less than standard price. General reason maybe reduction in market price of material and outdated data of standard material cost.
Unfavorable materials quantity variance	The quantity used is more than standard quantity. The quantity is used more because of the inefficiency of the labor or lower quality of material.
Unfavorable labor rate variance	The actual rate of labor is more than standard rate of labor. The reason is increase in rates of labor due to low labor quantity in market. Sometimes appointment of higher skilled labor may also result in labor rate variance.
Unfavorable labor efficiency variance	The actual labor hours are more than standard hours. One of the basic reason is that the labor employed are inefficient and untrained.