What does a Favourable direct materials efficiency variance indicate?

If more materials are used than needed or budgeted for the job, an unfavorable efficiency variance results. Conversely, a favorable direct materials efficiency variance results when fewer materials are used than planned.

What are the causes of Labour efficiency variance?

Causes for Total Labour Efficiency Variance

• Go slow tactics adopted by the trade union.
• Defective and bad materials.
• Lack of proper supervision.
• Breakdown of plant and machinery.
• Power failure.
• Insufficient training and incorrect instructions.
• Employment of efficient workers for full time and incentives given to them.

What causes labor rate variance?

Benefits changes. If the cost of labor includes benefits, and the cost of benefits has changed, then this impacts the variance. If a company brings in outside labor, such as temporary workers, this can create a favorable labor rate variance because the company is presumably not paying their benefits.

What type of account is purchase price variance?

This difference in standard cost and Purchase Order price is recorded in the purchase price variance account as a debit (showing expense because the PO price is higher than standard price).

Is a Favourable variance always good?

We express variances in terms of FAVORABLE or UNFAVORABLE and negative is not always bad or unfavorable and positive is not always good or favorable. A FAVORABLE variance occurs when actual direct labor is less than the standard.

What causes adverse direct material variance?

Reasons for adverse material usage variance include: Purchase of materials of lower quality than the standard (this will be reflected in a favorable material price variance). Use of unskilled labor. Increase in material wastage due to depreciation of plant and equipment.

Which of the following could cause a labor efficiency variance?

Causes for favorable labor efficiency variance may include: Hiring of more higher skilled labor (this may adversely impact labor rate variance). Training of work force in improved production techniques and methodologies. Use of better quality raw materials which are easier to handle.

What do you mean by Labour efficiency variance?

The labor efficiency variance focuses on the quantity of labor hours used in production. It is defined as the difference between the actual number of direct labor hours worked and budgeted direct labor hours that should have been worked based on the standards.

What does direct Labour rate variance indicate?

Direct Labor Rate Variance is the measure of difference between the actual cost of direct labor and the standard cost of direct labor utilized during a period.

Why is a favorable variance not always good?

How is the material purchase price variance defined?

Purchase price variance. This is the difference between the standard and actual cost per unit of the direct materials purchased, multiplied by the standard number of units expected to be used in the production process. This variance is the responsibility of the production department.