Question

practice: describe the standard cost analysis using direct...

1. an unfavorable labor rate variance is recorded as a debit in the________ variance account.
2. an unfavorable labor efficiency variance is recorded as a debit in the________ variance account.

respond to the following based on your reading.

1. what is a quantity standard? what is a price standard?
2. why are separate price and quantity variances computed?
3. if the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?
4. should standards be used to identify who is to blame for problems?

Explanation:

1. Unfavorable variances increase costs, so labor rate variance is debited to its own account.
2. Unfavorable labor efficiency variance is debited to its specific variance account.
3. Quantity standard = expected input per unit; Price standard = expected cost per input unit.
4. Separate variances isolate different responsibility areas (e.g., purchasing vs. production).
5. May indicate buying cheaper, lower-quality materials that require more usage.
6. Standards should focus on problem-solving, not blame, to encourage improvement.

Answer:

1. Labor Rate
2. Labor Efficiency
3. Quantity standard: The expected amount of input (e.g., hours, materials) needed per unit of output. Price standard: The expected cost per unit of input (e.g., per labor hour, per pound of material).
4. To identify different causes of cost deviations and assign responsibility appropriately (e.g., price variances often relate to purchasing, quantity variances to production).
5. The company may have purchased lower-cost (favorable price) but lower-quality materials, leading to more waste or inefficiency (unfavorable quantity).
6. No, standards should be used to identify areas for improvement rather than assign blame, as this fosters a collaborative environment focused on problem-solving.