Stellar Packaging Products’ controller, Robin Simmons, recently completed the di

Question

Stellar Packaging Products’ controller, Robin Simmons, recently completed the direct materials and direct labor variance analyses for the current period. The direct materials price variance for plastic was unfavorable; the direct materials efficiency variance for plastic was favorable. In addition, the direct labor price variance was unfavorable; the direct labor efficiency variance was favorable. Often variances occur simultaneously and provide insight regarding the performance for the period. Indicate one reason for each of two of these variances and ensure your explanation is interrelated, meaning the two events giving rise to the variance occurred simultaneously in a cause and effect manner.

Explanation / Answer

Variance   Cause Effect        1 Direct materials price variance unfavorable the rate of direct material per unit is more than the standard rate per unit Direct material price variance become unfavorable        2 Direct Material efficiency variance favorable The Actual qty used for actual production is less than the standard qty required for actual prodcution. May be the high quality of raw materials purchased at a higher cost has caused savings in actual use in production. Direct Materials efficiency variance is favorable.        3 Direct Labor price variance unfavorable the rate of direct labor per hour is more than the stabdard labor rate per hour. Direct LAbor price variance becomes unfavorable        4 Direct LAbor efficiency variance favorable The actual labor hours used in production is less than the standard no of labor hours required for actual production. The use of high skilled labor along with high quality material resulted in lower labor hourse used than standard hours. Direct LAbor efficiency variance is favorable

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