Question

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: 30,000 Debit Credit Materials Price Variance.......... 25,000 Materials Quantity Variance... 9,000 Labor Rate Variance. .......... Labor Efficiency Variance...... Standards set at the beginning of the year have remai unchanged. All inventories are priced at standard cost. Wha clusions can be drawn from each of the four variances she Endicott's trial balance? 7,500 nces shown in

Answer 1

1]	The material price variance is unfavorable. It indicates
	that the actual purchase price is more than the standard
	price. The procurement section has not been successful
	in buying at the standard price.
2]	The material quantity variance is favorable. It indicates
	that the actual consumption of materials is less than
	the standards set. It is due to the efficient performance
	of the production department.
3]	The labor rate variance is favorable suggesting that the
	rate of wages paid is less than the standard.
4]	The labor efficiency variance is also favorable. It suggests
	that the labor has been efficient in turning out production
	in less than the standard hours required for the actual
	quantity produced. This goes to the credit of the production
	department.

Note: With respect to cost variances, debit balance in variance account means unfavorable variance and credit balance means favorable variance.