Question
Assume you are the manager of a company that installs floor tiles. The Covid pandemic has resulted in a huge increase in work. In order
Assume you are the manager of a company that installs floor tiles. The Covid pandemic has resulted in a huge increase in work. In order to meet this increased demand, you purchase several new tile saws that can cut more accurately and cut faster. These saws have a useful life of several years. Because of this new tile saws, you can purchase slightly lower quality tiles. Labour costs per hour remains the same. The new tile saw requires the same amount of indirect material per hour as the old saw. Overhead is allocated based on Direct Labour Hours.
For each of the following variances, indicate if the new saw will create a (1) favourable variance, (2) unfavourable variance or (3) no material variance. Provide a brief explanation for your responses.
- Material Price/Rate
- Material Efficiency
- Labour Price/Rate
- Labour Efficiency
- Fixed Overhead Rate
- Fixed Overhead Production Volume
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