Question

1) What does an unfavorable materials quantity variance mean? What could be the cause of such a variance?

2) What does an unfavorable labor efficiency variance mean? What could be the cause of such a variance?

Answer 1

Ans: Direct materials quantity variance can be computed as

DM quantity variance = (AQ - SQ) x SP

where: AQ = actual quantity, SQ = standard quantity, and SP = standard price.

Unfavorable quantity variance means If the actual quantity variance is bigger than the standard quantity then it is said to unfavorable

The cause of such variance is that the company may be using low-quality materials or use of less skilled workers to reduce labor costs

Direct labor efficiency variance can be computed as

DL quantity variance= AH- SH) x SR

where: AH = actual hours, SH = standard hours  and SR = standard rate.

Unfavorable labor efficiency variance means If the actual hours  is bigger than the standard hours  then it is said to unfavorable

The cause of such variance are inexperienced workers ,Poorly motivated workers , Old or faulty equipment and purchase of low quality or unsuitable direct materials