Variance

Which of the basic principles of TQM sums up the idea that it costs less in the long run to prevent defective production than to employ teams of inspectors, to scrap materials or to rework shoddy output?

• 1. Prevention.

• Employee participation.

• Working circles.

• 1. Continuous improvement.

Which THREE of the following may be a reason why a favourable labour efficiency variance has arisen?

• Higher quality material purchased

• 1. Out of date machinery resulting in delays in the production process.

• Over absorption of overheads.

• Workforce motivated to perform well with higher bonuses for efficiency.

• 1. Hiring of more highly skilled workforce.

Last month’s budget report for Timber Production Co revealed an adverse labour efficiency variance of $60,000

Which of the following factors would influence your decision whether or not to investigate this labour efficiency variance (more than 1 answer)

• The trend in the variance.

• The cost of the investigation.

• The controllability of the variance.

• 1. The materiality of the variance

Which of the following circumstances best demonstrate the main reason that require planning and operational variances analysis for a manufacturing business, TH Co which produce pre-cooked food with imported ingredient? 

• An outbreak of unpredicted pandemic during the year that disturbed the global supply chain in material supply

• TH Co operates in a highly regulated market with strong protectionism measures adopted by the government

• A recent enforcement of new minimum wage act before TH Co finalise its budget

• TH Co appointed a new management accountant to replace the existing management accountant who have been working with the company since its inception before TH Co finalise its budget

The following types of finished products require more than one type of material in their production:

1.   Outdoor shoes

2.   Carbonated drinks

3.   Laptop computers

4.   Cement

For which of the above finished products would it be useful for management to measure the mix and yield variances related to material cost variance? 

• A.  1 and 3

• B.  2 and 4

• C.  1, 3 and 4

• D.  1, 2, 3 and 4

 LO Co budgeted for 10kg of raw materials costing $18 per kg to be used in each unit of product X. A worldwide shortage of materials meant that the normal market price of raw materials rose to $22 per kg after the budget was set. LO Co’s purchasing director, however, managed to purchase raw materials at $20 per kg. 11,000 units of product X were produced in the period and material costs were $2,145,000.

What is the favourable material usage variance for product X?

(a)