Question

3-12 retrieve the stanudlu cu Using variance analysis and interpretation Last year, Endicott Corp. adopted a standard cost system. Labor standards were set on the basis of time studies and prevailing wage rates. Materials standards were determined from materials specifications and the prices then in effect. On June 30, the end of the current fiscal year, a partial trial bal- ance revealed the following: Debit Credit 25,000 Materials Price Variance. . . . . . . . 9,000 Materials Quantity Variance... Labor Rate Variance.......... 30,000 Labor Efficiency Variance............ 7,500 Standards set at the beginning of the year have reinained unchanged. All inventories are priced at standard cost. What con- clusions can be drawn from each of the four variances shown in Endicott's trial balance?

Answer 1

Materials Price Variance shows a debit balance of 25000 which implies Material Prices have increased and are higher than what was set as standard at the beginning of the year.

Material Quantity Variance shows a credit balance of 9000 which implies lower Materials are being consumed for production than what was set as standard at the beginning of the year.

Labor Rate Variance shows a credit balance of 30000 which implies labor rates have decreased than what was set as standard at the beginning of the year.

Labor Efficiency Variance shows a credit balance of 7500 which implies labor efficiency has increased than what was set as standard at the beginning of the year.