Question

Possible causes for price and efficiency variances. You have been invited to interview for an internship with an international food manufacturing company. When you arrive for the interview, you are given the following information related to a fictitious Belgian chocolatier for the month of June. The choco-latier manufactures truffles in 12-piece boxes. The production is labor intensive, and the delicate nature of the chocolate requires a high degree of skill.ActualBoxes produced 10,000Direct materials used in production 2,150,000 gActual direct material cost 60,200 euroActual direct manufacturing labor-hours 1,100Actual direct manufacturing labor cost 12,650 euroStandardsPurchase price of direct materials 0.03 euro/gMaterials per box 200 gWage rate 12 euro/hourBoxes per hour 10Please respond to the following questions as if you were in an interview situation:1. Calculate the materials efficiency and price variance and the wage and labor efficiency variances for the month of June.2. Discuss some possible causes of the variances you have calculated. Can you make any possible connection between the material and labor variances

Answer 1

Step-by-step explanation:

Actual Boxes produced 10,000

Direct materials used in production 2,150,000 g

Actual direct material cost 60,200 euro

Actual direct manufacturing labor-hours 1,100

Actual direct manufacturing labor cost 12,650 euro

Standards

Purchase price of direct materials 0.03 euro/g

Materials per box 200 g

Wage rate 12 euro/hour

Boxes per hour 10

1) materials price variance = (actual price - budgeted price) × actual quantity = (0.028 - 0.03) × 2,150,000 = -4,300 € favorable variance

materials efficiency variance = (actual quantity - budgeted quantity) × standard price = (2,150,000 - 2,000,000) × 0.03 = 4,500 € unfavorable

labor price variance = (actual rate - standard rate) x actual hours = (11.50 - 12) x 1,100 = -550 € favorable variance

labor efficiency variance = (actual hours - standard hours) x standard rate = (1,100 - 1,000) x 12 = 1,200 € unfavorable

2) Since the materials price variance is favorable, i can assume that they purchased a lower quality materials. That resulted in more labor hours required to produce chocolates + more materials needed to produce the same amount of chocolates. Sometimes when you save money by purchasing cheaper materials or hiring unskilled labor, total costs will increase because their efficiency is lower.