4 For each of the following situations indicate if the effec

4. For each of the following situations, indicate if the effect will be favorable or unfavorable, and identify which standard cost variance(s) will be affected: DM price, DM quantity, overall DM variance, DL rate, DL efficiency, overall DL variance, VOH spending, VOH efficiency, total VOH variance, FOH variance. An increase in vacation benefits resulted in improved employee morale. Consequently raw materials pilferage and waste declined, and production efficiency increased. a. b. The plant manager reassigned several higher-skilled workers from Department B to Department A. Commensurate with their skills, the average wage rate of the Department B workers was higher than the average rate of the Department A workers. Since they were not accustomed to the work, the average Department B worker took longer to produce each unit. At the beginning of the month, a supplier notified us that, because of a minor design improvement, the price will be increased by 15 percent above the current standard price. As a result of the improved design, we expect the number of defective components to decrease. Defective units are identified by materials inspectors prior to use and are not returnable c.

Solution

A). Since there has been an increase in vacation benefits, the company would have needed to incur additional cost thereby affecting the DL rate variance unfavourably.

Since the efficiency increased due to improved employee morale, the DL efficiency variance would be affected favourably.

Since less wastage and pilferage has been caused, the DAM quantity variance shall be affected.

B)As the cost of labour has increased due to assignment of expensive labourers from department B to department A the DL rate variance will be affected unfavourably.

The DL efficiency variance would also be affected unfavourably during the learning phase of the workers.

C) Due to the price increase in the component, the DAM rate variance will be affected unfavourably but since less defective units will be produced the DM quantity variance will be affected favourably. overall DAM variance shall also be impacted.