Question 1 [10 Marks]

Farhan Ullah Aziz has been running an electronics manufacturing business for a long time. The company uses Direct Labor Hours as a cost driver for applying overheads to different products. For the following INDEPENDEDNT situations, identify which variances would likely occur and would they be favorable (write 'F'), unfavorable (write 'U') or there would be no effect on that variance (write 'NE'). Assume that in every situation, everything else remains constant.

Direct Materials Price Variance - F or UF or NE

Direct Materials Quantity Variance - F or UF or NE

Labor Rate Variance - F or UF or NE

Labor Efficiency Variance - F or UF or NE

Variable Overhead Rate Variance - F or UF or NE

Variable Overhead Efficiency Variance - F or UF or NE

1. Cheap, low cost maintenance tools are purchased resulting in workers having to re-work on several televisions, and wastage of direct materials and machine time.

2. Cheap, unskilled labor kept the machines running even when they were not required for production, wasting energy unnecessarily.

3. The maintenance manager, in a bid to save on costs, reduced maintenance of machinery. The machines broke down more often than anticipated, resulting in loss of productive time for labor

4. Unskilled, low cost labor was employed. They were a bit lazy too!

5. Graduates from a highly rankedbusiness school were hired in production department who would steal electronic components from the factory.

6. Transportation company increased charges for delivering raw materials to the company.

7. The company hired an SDSB graduate who outsourced factory building maintenance to a friend's company which charged higher than the previous contractor.

8. The company produced less than anticipated.

9. The standards company uses for variance analysis have not been adjusted for inflation for a few years.

10. Unfortunately, the company hired inefficient SDSB graduates in its accounting and finance department.