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C.1. Cost and Variance Measures Part 2 Essay 1

1. Management by exception means focusing on areas that are not meeting expectations rather than areas operating effectively. Maxwell could focus on the unfavorable materials usage variance or units serviced/labor costs if different than planned. 2. Maxwell's total direct labor rate variance for May was $200 favorable due to a $3,800 unfavorable HVAC technician variance and a $4,000 favorable apprentice variance. 3. Maxwell's total direct labor efficiency variance for May was $5,000 unfavorable. This was due to a $12,000 unfavorable HVAC technician variance and a $7,000 favorable apprentice variance.

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64 views7 pages

C.1. Cost and Variance Measures Part 2 Essay 1

1. Management by exception means focusing on areas that are not meeting expectations rather than areas operating effectively. Maxwell could focus on the unfavorable materials usage variance or units serviced/labor costs if different than planned. 2. Maxwell's total direct labor rate variance for May was $200 favorable due to a $3,800 unfavorable HVAC technician variance and a $4,000 favorable apprentice variance. 3. Maxwell's total direct labor efficiency variance for May was $5,000 unfavorable. This was due to a $12,000 unfavorable HVAC technician variance and a $7,000 favorable apprentice variance.

Uploaded by

Kondreddi Saku
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1- Explain how Maxwell could use management by exception.

2- Calculate Maxwell's total direct labor rate variance for the month of May. Show your
calculations.
3- Calculate Maxwell's total direct labor efficiency variance for the month of May. Show
your calculations.
4- Without performing any calculations, explain how Maxwell could further analyze the
labor efficiency variance.
5- Identify one possible cause and one corrective action for the combination of a favorable
direct materials price variance and an unfavorable direct materials usage variance
experienced by Maxwell in May.
1-

Explanation

Management by exception means management focuses attention on areas that are not performing
or meeting expectations. Management spends less time on areas that are operating effectively.
Maxwell can use management by exception by focusing on the unfavorable direct materials
usage variance. It could also look at units serviced or total labor costs if they varied significantly
from budget or planned results.
2-

Explanation

Total direct labor rate variance $200F

AQ × AP AQ × SP Variance
HVAC technicians 1,900 × $32 = $60,800 1,900 × $30 = $57,000 $3,800U
Apprentice 4,000 × $13 = $52,000 4,000 × $14 = $56,000 $4,000F
$ 200F
3-

Explanation

Total direct labor efficiency variance $5,000U

AQ × SP SQ × SP Variance
HVAC technicians 1,900 × $30 = $57,000 *1,500 × $30 = $45,000 $12,000U
Apprentice 4,000 × $14 = $56,000 **4,500 × $14=$63,000 $ 7,000F
$5,000U
*SQ = 1,500 × 1 hour

**SQ =1,500 × 3 hours


4-

Explanation

Maxwell has two substitutable labor inputs. The labor efficiency variance could be further
analyzed by breaking down the variance into the mix variance and yield variance. The mix
variance analyzes the difference between actual and standard input proportions. The yield
variance analyzes the difference between actual and standard inputs used.
5-

Explanation

Favorable direct materials variance combined with unfavorable direct materials variance:
Maxwell purchased cheaper, lower-quality materials. These lower-quality materials caused
increased waste. Because the unfavorable usage variance was greater than the favorable direct
materials variance, Maxwell should correct purchasing policies to ensure that quality materials
are purchased.

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