Franklin Company uses the following rule to determine whether labor efficiency variances ought to be investigated. A
Question:
Franklin Company uses the following rule to determine whether labor efficiency variances ought to be investigated. A labor efficiency variance will be investigated anytime the amormt exceeds the lesser of $16,000 or 10% of the standard labor cost. Reports for the past five weeks provided the following information:
Required:
1. Using the rule provided, identify the cases that will be investigated.
2. Suppose that investigation reveals that the cause of an unfavorable labor efficiency vari¬
ance is the use of lower-quality materials than are usually used. Who is responsible?
What corrective action would likely be taken? Ioua. J 3. Suppose that investigation reveals that the cause of a significant favorable labor effi¬
ciency variance is attributable to a new approach to manufacturing that takes less la¬
bor time but causes more material waste. Upon examining the materials usage variance, it is discovered to be unfavorable, and it is larger than the favorable labor efficiency variance. Who is responsible? What action should be taken? Ffow would your answer change if the unfavorable variance were smaller than the favorable?
Step by Step Answer:
Cost Management Accounting And Control
ISBN: 9780324002324
3rd Edition
Authors: Don R. Hansen, Maryanne M. Mowen