Question

5) What are causes of Material Variances?

6) What are causes of Labor Variances?

7) How is overhead variances analyzed?

8) What are causes of Manufacturing Overhead Variances?

9) What is a Balanced Scorecard? What does it evaluate?

Answer 1

1) The main causes of Material Variances:

- Fluctuations in materials market prices

-- Purchasing in lots that are non-standards.

-- Purchasing from those suppliers that are located unfavourably, and due to which the additional cost of transportation has been incurred.

-- Possibility of fraud

-- Excessive shrinkage or losses occurred during transit,

-- Purchase of items from the suppliers other than those who has offered the most favourable terms.

-- Due to payments delay, cash discount cannot be availed.

-- Due to the purpose of special handling or faster transportation, extra charges are required to be paid.

--Purchases done due to emergency basis to place rush orders at any price for immediate delivery.

2) The main causes of Labor Variances are:

--The labor standard may not be considering recent changes in the rates paid to employees

--The actual amounts paid may be inclusive of extra payments for shift differentials or due to overtime

-- The engineering staff possibly has decided to alter the product components that need manual processing, thus altering the amount of labor required in the production process.

-- A labor standard might be assuming that a specific job classification will perform a designated task, however in fact a different position with a different pay rate may be performing the work

-- When the cost of labor is inclusive of benefits, and the cost of benefits has changed, then may impacts the variance

3) There are mainly four methods for the analysis of overhead variances:

(i) Expenditure Variance or Spending Variance.

(ii) Variable Overhead Efficiency Variance.

(iii) Fixed Overhead Efficiency Variance.

(iv) Fixed Overhead Capacity Variance

4) The main causes of Manufacturing Overhead Variances are:

-- Spending variance i.e. the variance because of the expense factors

-- Occurs due to difference in volume and activity factors.

-- Due to inefficient use of overhead

5) A balanced scorecard involves financial and nonfinancial measures for correlating a system that links measurements of performance and aligns them with the goals of organization. A balanced scorecard is a better and fair approach to evaluate management because it takes into consideration all that is involved for the organisation to reach its target and can evaluate if performance is meeting the targets set forth by the company.