QUESTION 1

Materials Quantity Variance = F, Materials Price Variance = F, Labor Efficiency Variance = F, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances?

	The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up very well in production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consitently exceeded.
	The purchasing manager is finding low cost materials but their low quality may be contributing to excess waste during production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up well in production. No problems in the purchasing department. But just days ago, the owner's nephew took over as production manager. He has no experience and fired some good workers to hire his friends at ridiculously high wages. The factory floor has turned into a zoo. Thank goodness the equipment and procedures in place are sound.

2 points

QUESTION 2

Materials Quantity Variance = F or no variance, Materials Price Variance = U, Labor Efficiency Variance = F, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances?

	The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up adequately in production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	The purchasing manager is finding low cost materials but their low quality may be contributing to excess waste during production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	The production manager and the employees in the factory have won numerous company awards for innovation, efficiency, and many cost saving ideas. The purchasing manager was recently fired for awarding contracts to friends at exorbitant costs in exchange inferior raw materials.

2 points

QUESTION 3

Materials Quantity Variance = U, Materials Price Variance = F, Labor Efficiency Variance = F, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances?

	The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up adequately in production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	This company seems to be losing control of the manufacturing process. Materials purchased are overpriced and do not hold up well in production. Employee wages are above the standard, indicating either unplanned overtime was needed or higher skilled workers are doing jobs below their pay grade. Poor materials, poor supervision, and equipment breakdowns have required more direct labor hours than the standard budgeted.
	Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	One of the machines in the factory was not working properly and destroyed thousands of dollars of raw materials before it could be repaired. Other than that one glitch, the purchasing department exceeds expectations and its competent; the manufacturing employees similarly are top notch and well managed, continually surpassing expectations.

2 points

QUESTION 4

Materials Quantity Variance = U, Materials Price Variance = U, Labor Efficiency Variance = F, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances?

	One of the machines in the factory was not working properly and destroyed thousands of dollars of raw materials before it could be repaired. Other than that one glitch, the purchasing department exceeds expectations and its competent; the manufacturing employees similarly are top notch and well managed, continually surpassing expectations.
	The production manager and the employees in the factory have won numerous company awards for innovation, efficiency, and many cost saving ideas. The purchasing manager was recently fired for awarding contracts to friends at exorbitant costs in exchange inferior raw materials.
	This company seems to be losing control of the manufacturing process. Materials purchased are overpriced and do not hold up well in production. Employee wages are above the standard, indicating either unplanned overtime was needed or higher skilled workers are doing jobs below their pay grade. Poor materials, poor supervision, and equipment breakdowns have required more direct labor hours than the standard budgeted.
	Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.

2 points

QUESTION 5

Materials Quantity Variance = F, Materials Price Variance = F, Labor Efficiency Variance = F, Labor Rate Variance = U.

	The philosophy of the company is that cheap labor makes the world go 'round. If an employee's wages can be cut, they will be. The purchasing and production manager salaries are kept at 20% below comparable positions in the area, with frequent unexpected reductions for punitive measures. The idea is that savings on salaries and wages will translate to higher profits. In reality, it has resulted in low morale and a poor work ethic that has permeated the company. Employees cut corners whenever possible and are not committed to advancing company interests.
	This company is doing well and expanding into more advanced technological fields. They recently upgraded the production process by hiring highly qualified candidates and by offering advanced training for existing employees, which upgraded their pay. These moves were more costly than planned. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up very well in production. The employees are well trained, properly supervised and will be ready to take on more difficult and sophisticated work when the expansion is complete.
	One of the machines in the factory was not working properly and destroyed thousands of dollars of raw materials before it could be repaired. Other than that one glitch, the purchasing department exceeds expectations and is competent; the manufacturing employees similarly are top notch and well managed, continually surpassing expectations.
	Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.

2 points

QUESTION 6

Materials Quantity Variance = F, Materials Price Variance = F, Labor Efficiency Variance = U, Labor Rate Variance = U. Which of the following is the most likely scenario for these variances?

	This company is doing well and expanding into more advanced technological fields. They recently upgraded the production process by hiring highly qualified candidates and by advanced training for existing employees, which upgraded their pay. These moves were more costly than planned. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up exceedingly well in production. The employees are well trained, properly supervised and will be ready to take on more difficult and sophisticated work when the expansion is complete.
	The production manager and the employees in the factory have won numerous company awards for innovation, efficiency, and many cost saving ideas. The purchasing manager was recently fired for awarding contracts to friends at exorbitant costs in exchange for inferior raw materials.
	This company is putting all its resources into high tech production equipment that streamlines the manufacturing process to both produce a superior product and use raw materials that other firms routinely discard. Some amazing deals on materials picked up at the dump and recycling locations have been found in the last weeks. The new machines almost never create waste or break down, providing even better than expected results. As a result of the high capital expenditures on equipment, the company has not invested in its employees and morale is low. Employees call in sick at the last minute, upsetting production schedules. Retaining highly skilled workers is tough and bonuses were hastily distributed to keep some of the top performers from jumping ship.
	Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.

2 points

QUESTION 7

Materials Quantity Variance = U, Materials Price Variance = U, Labor Efficiency Variance = U, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances?

	The philosophy of the company is that cheap labor makes the world go 'round. If an employee's wages can be cut, they will be. The purchasing and production manager salaries are kept at 20% below comparable positions in the area, with frequent unexpected reductions for punitive measures. The idea is that savings on salaries and wages will translate to higher profits. In reality, it has resulted in low morale and a poor work ethic that has permeated the company. Employees cut corners whenever possible and are not committed to advancing company interests.
	Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	The purchasing manager is finding low cost materials but their low quality may be contributing to excess waste during production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	This company is doing well and expanding into more advanced technological fields.They recently upgraded the production process by hiring highly qualified candidates and by advanced training for existing employees. These moves were more costly than planned. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up exceedingly well in production. The employees are well trained, properly supervised and will be ready to take on more difficult and sophisticated work when the expansion is complete.

2 points

QUESTION 8

Materials Quantity Variance = U, Materials Price Variance = F, Labor Efficiency Variance = U, Labor Rate Variance = U. Which of the following is the most likely scenario for these variances?

	The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up very well in production. No problems in the purchasing department. But just days ago, the owner's nephew took over as production manager. He has no experience and fired some good workers to hire his friends at ridiculously high wages. The factory floor has turned into a zoo. Thank goodness the equipment and procedures in place are sound.
	Buying cheap material that looked like a "steal" seemed like a good idea at the time. But it has been nothing but headaches. There is a much higher degree of waste and product must be re-worked, requiring both extra hours from employees and even expensive overtime.
	The philosophy of the company is that cheap labor makes the world go 'round. If an employee's wages can be cut, they will be. The purchasing and production manager salaries are kept at 20% below comparable positions in the area, with frequent unexpected reductions for punitive measures. The idea is that savings on salaries and wages will translate to higher profits. In reality, it has resulted in low morale and a poor work ethic that has permeated the company. Employees cut corners whenever possible and are not committed to advancing company interests.
	This company is doing well and expanding into more advanced technological fields. They recently upgraded the production process by hiring highly qualified candidates and by advanced training for existing employees. These moves were more costly than planned. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up exceedingly well in production. The employees are well trained, properly supervised and will be ready to take on more difficult and sophisticated work when the expansion is complete.

2 points

QUESTION 9

Materials Quantity Variance = F, Materials Price Variance = F, Labor Efficiency Variance = U, Labor Rate Variance = U. Which of the following is the most likely scenario for these variances?

	The purchasing manager is doing a good job of finding quality materials at a discounted price. The materials hold up very well in production. No problems in the purchasing department. But just days ago, the owner's nephew took over as production manager. He has no experience and fired some good workers to hire his friends at ridiculously high wages. The factory floor has turned into a zoo. Thank goodness the equipment and procedures in place are sound.
	Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded.
	The philosophy of the company is that cheap labor makes the world go 'round. If an employee's wages can be cut, they will be. The purchasing and production manager salaries are kept at 20% below comparable positions in the area, with frequent unexpected reductions for punitive measures. The idea is that savings on salaries and wages will translate to higher profits. In reality, it has resulted in low morale and a poor work ethic that has permeated the company. Employees cut corners whenever possible and are not committed to advancing company interests.
	Buying cheap material that looked like a "steal" seemed like a good idea at the time. But it has been nothing but headaches. There is a much higher degree of waste and product must be re-worked, requiring both extra hours from employees and even expensive overtime.

2 points

QUESTION 10

Materials Quantity Variance = U, Materials Price Variance = U, Labor Efficiency Variance = U, Labor Rate Variance = U. Which of the following is the most likely scenario for these variances?

	Buying cheap material that looked like a "steal" seemed like a good idea at the time. But it has been nothing but headaches. There is a much higher degree of waste and product must be re-worked, requiring both extra hours from employees and even expensive overtime.
	The production manager and the employees in the factory have won numerous company awards for innovation, efficiency, and many cost saving ideas. The purchasing manager was recently fired for awarding contracts to friends at exorbitant costs in exchange inferior raw materials.
	One of the machines in the factory was not working properly and destroyed thousands of dollars of raw materials before it could be repaired. Other than that one glitch, the purchasing department exceeds expectations and its competent; the manufacturing employees similarly are top notch and well managed, continually surpassing expectations.
	This company seems to be losing control of the manufacturing process. Materials purchased are overpriced and do not hold up well in production. Employee wages are above the standard, indicating either unplanned overtime was needed or higher skilled workers are doing jobs below their pay grade. Poor materials, poor supervision, and equipment breakdowns have required more direct labor hours than the standard budgeted.

1. QUESTION 1 Materials Quantity Variance = F, Materials Price Variance = F, Labor Efficiency Variance = F, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances? The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up very well in production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consitently exceeded. The purchasing manager is finding low cost materials but their low quality may be contributing to excess waste during production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up well in production. No problems in the purchasing department. But just days ago, the owner's nephew took over as production manager. He has no experience and fired some good workers to hire his friends at ridiculously high wages. The factory floor has turned into a zoo. Thank goodness the equipment and procedures in place are sound. 2 points QUESTION 2 1. Materials Quantity Variance = F or no variance, Materials Price Variance = U, Labor Efficiency Variance = F, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances? The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up adequately in production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. The purchasing manager is finding low cost materials but their low quality may be contributing to excess waste during production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. The production manager and the employees in the factory have won numerous company awards for innovation, efficiency, and many cost saving ideas. The purchasing manager was recently fired for awarding contracts to friends at exorbitant costs in exchange inferior raw materials. 2 points 1. QUESTION 3 Materials Quantity Variance = U, Materials Price Variance = F, Labor Efficiency Variance = F, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances? The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up adequately in production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. This company seems to be losing control of the manufacturing process. Materials purchased are overpriced and do not hold up well in production. Employee wages are above the standard, indicating either unplanned overtime was needed or higher skilled workers are doing jobs below their pay grade. Poor materials, poor supervision, and equipment breakdowns have required more direct labor hours than the standard budgeted. Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. One of the machines in the factory was not working properly and destroyed thousands of dollars of raw materials before it could be repaired. Other than that one glitch, the purchasing department exceeds expectations and its competent; the manufacturing employees similarly are top notch and well managed, continually surpassing expectations. 2 points 1. QUESTION 4 Materials Quantity Variance = U, Materials Price Variance = U, Labor Efficiency Variance = F, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances? One of the machines in the factory was not working properly and destroyed thousands of dollars of raw materials before it could be repaired. Other than that one glitch, the purchasing department exceeds expectations and its competent; the manufacturing employees similarly are top notch and well managed, continually surpassing expectations. The production manager and the employees in the factory have won numerous company awards for innovation, efficiency, and many cost saving ideas. The purchasing manager was recently fired for awarding contracts to friends at exorbitant costs in exchange inferior raw materials. This company seems to be losing control of the manufacturing process. Materials purchased are overpriced and do not hold up well in production. Employee wages are above the standard, indicating either unplanned overtime was needed or higher skilled workers are doing jobs below their pay grade. Poor materials, poor supervision, and equipment breakdowns have required more direct labor hours than the standard budgeted. Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. 2 points 1. QUESTION 5 Materials Quantity Variance = F, Materials Price Variance = F, Labor Efficiency Variance = F, Labor Rate Variance = U. The philosophy of the company is that cheap labor makes the world go 'round. If an employee's wages can be cut, they will be. The purchasing and production manager salaries are kept at 20% below comparable positions in the area, with frequent unexpected reductions for punitive measures. The idea is that savings on salaries and wages will translate to higher profits. In reality, it has resulted in low morale and a poor work ethic that has permeated the company. Employees cut corners whenever possible and are not committed to advancing company interests. This company is doing well and expanding into more advanced technological fields. They recently upgraded the production process by hiring highly qualified candidates and by offering advanced training for existing employees, which upgraded their pay. These moves were more costly than planned. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up very well in production. The employees are well trained, properly supervised and will be ready to take on more difficult and sophisticated work when the expansion is complete. One of the machines in the factory was not working properly and destroyed thousands of dollars of raw materials before it could be repaired. Other than that one glitch, the purchasing department exceeds expectations and is competent; the manufacturing employees similarly are top notch and well managed, continually surpassing expectations. Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. 2 points 1. QUESTION 6 Materials Quantity Variance = F, Materials Price Variance = F, Labor Efficiency Variance = U, Labor Rate Variance = U. Which of the following is the most likely scenario for these variances? This company is doing well and expanding into more advanced technological fields. They recently upgraded the production process by hiring highly qualified candidates and by advanced training for existing employees, which upgraded their pay. These moves were more costly than planned. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up exceedingly well in production. The employees are well trained, properly supervised and will be ready to take on more difficult and sophisticated work when the expansion is complete. The production manager and the employees in the factory have won numerous company awards for innovation, efficiency, and many cost saving ideas. The purchasing manager was recently fired for awarding contracts to friends at exorbitant costs in exchange for inferior raw materials. This company is putting all its resources into high tech production equipment that streamlines the manufacturing process to both produce a superior product and use raw materials that other firms routinely discard. Some amazing deals on materials picked up at the dump and recycling locations have been found in the last weeks. The new machines almost never create waste or break down, providing even better than expected results. As a result of the high capital expenditures on equipment, the company has not invested in its employees and morale is low. Employees call in sick at the last minute, upsetting production schedules. Retaining highly skilled workers is tough and bonuses were hastily distributed to keep some of the top performers from jumping ship. Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. 2 points QUESTION 7 1. Materials Quantity Variance = U, Materials Price Variance = U, Labor Efficiency Variance = U, Labor Rate Variance = F. Which of the following is the most likely scenario for these variances? The philosophy of the company is that cheap labor makes the world go 'round. If an employee's wages can be cut, they will be. The purchasing and production manager salaries are kept at 20% below comparable positions in the area, with frequent unexpected reductions for punitive measures. The idea is that savings on salaries and wages will translate to higher profits. In reality, it has resulted in low morale and a poor work ethic that has permeated the company. Employees cut corners whenever possible and are not committed to advancing company interests. Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. The purchasing manager is finding low cost materials but their low quality may be contributing to excess waste during production. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. This company is doing well and expanding into more advanced technological fields.They recently upgraded the production process by hiring highly qualified candidates and by advanced training for existing employees. These moves were more costly than planned. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up exceedingly well in production. The employees are well trained, properly supervised and will be ready to take on more difficult and sophisticated work when the expansion is complete. 2 points 1. QUESTION 8 Materials Quantity Variance = U, Materials Price Variance = F, Labor Efficiency Variance = U, Labor Rate Variance = U. Which of the following is the most likely scenario for these variances? The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up very well in production. No problems in the purchasing department. But just days ago, the owner's nephew took over as production manager. He has no experience and fired some good workers to hire his friends at ridiculously high wages. The factory floor has turned into a zoo. Thank goodness the equipment and procedures in place are sound. Buying cheap material that looked like a "steal" seemed like a good idea at the time. But it has been nothing but headaches. There is a much higher degree of waste and product must be re-worked, requiring both extra hours from employees and even expensive overtime. The philosophy of the company is that cheap labor makes the world go 'round. If an employee's wages can be cut, they will be. The purchasing and production manager salaries are kept at 20% below comparable positions in the area, with frequent unexpected reductions for punitive measures. The idea is that savings on salaries and wages will translate to higher profits. In reality, it has resulted in low morale and a poor work ethic that has permeated the company. Employees cut corners whenever possible and are not committed to advancing company interests. This company is doing well and expanding into more advanced technological fields. They recently upgraded the production process by hiring highly qualified candidates and by advanced training for existing employees. These moves were more costly than planned. The purchasing manager is doing a good job of finding quality materials at discounted prices. The materials hold up exceedingly well in production. The employees are well trained, properly supervised and will be ready to take on more difficult and sophisticated work when the expansion is complete. 2 points 1. QUESTION 9 Materials Quantity Variance = F, Materials Price Variance = F, Labor Efficiency Variance = U, Labor Rate Variance = U. Which of the following is the most likely scenario for these variances? The purchasing manager is doing a good job of finding quality materials at a discounted price. The materials hold up very well in production. No problems in the purchasing department. But just days ago, the owner's nephew took over as production manager. He has no experience and fired some good workers to hire his friends at ridiculously high wages. The factory floor has turned into a zoo. Thank goodness the equipment and procedures in place are sound. Unforeseen events caused a spike in the cost of raw materials, but fortunately the quality of the materials was not compromised. The employees are well trained, properly supervised, and their skills properly match the jobs to which they are assigned, which allows for expectations to be consistently exceeded. The philosophy of the company is that cheap labor makes the world go 'round. If an employee's wages can be cut, they will be. The purchasing and production manager salaries are kept at 20% below comparable positions in the area, with frequent unexpected reductions for punitive measures. The idea is that savings on salaries and wages will translate to higher profits. In reality, it has resulted in low morale and a poor work ethic that has permeated the company. Employees cut corners whenever possible and are not committed to advancing company interests. Buying cheap material that looked like a "steal" seemed like a good idea at the time. But it has been nothing but headaches. There is a much higher degree of waste and product must be re-worked, requiring both extra hours from employees and even expensive overtime. 2 points QUESTION 10 1. Materials Quantity Variance = U, Materials Price Variance = U, Labor Efficiency Variance = U, Labor Rate Variance = U. Which of the following is the most likely scenario for these variances? Buying cheap material that looked like a "steal" seemed like a good idea at the time. But it has been nothing but headaches. There is a much higher degree of waste and product must be re-worked, requiring both extra hours from employees and even expensive overtime. The production manager and the employees in the factory have won numerous company awards for innovation, efficiency, and many cost saving ideas. The purchasing manager was recently fired for awarding contracts to friends at exorbitant costs in exchange inferior raw materials. One of the machines in the factory was not working properly and destroyed thousands of dollars of raw materials before it could be repaired. Other than that one glitch, the purchasing department exceeds expectations and its competent; the manufacturing employees similarly are top notch and well managed, continually surpassing expectations. This company seems to be losing control of the manufacturing process. Materials purchased are overpriced and do not hold up well in production. Employee wages are above the standard, indicating either unplanned overtime was needed or higher skilled workers are doing jobs below their pay grade. Poor materials, poor supervision, and equipment breakdowns have required more direct labor hours than the standard budgeted. BEHIND THE VARIANCES What's Behind the VARIANCE AMOUNT and THE FAVORABLE OR UNFAVORABLE DESIGNATIONS? Both the amount and designation will be explored in further depth here. VARIANCE AMOUNT When to Worry? When the variance is large. Not all variances can be investigated. The practice known as \"Management by Exception\" focuses on variances that are large or that form a pattern that cannot be explained. How much is Large? That depends. A mini-statistics lesson is in order. The graph below is the normal bell curve. 0 represents the mean, in this case the mean of a specific variance. That mean would be determined over time, perhaps each production run, or daily summaries, or hourly updates, etc. The -1, -2, -3, 0, 1, 2, 3 along the x-axis are standard deviations away from the mean, which is 0. The graph shows that approximately 68% of all data in the graph is +/- 1 standard deviation away from the mean. At +/-2 standard deviations from the mean is approximately 95% of all data in the graph. Any data reaching 3 standard deviations from the mean is a real rarity because 99.7% of all data is within 3 standard deviations of the mean. In Chart Form Standard Deviations () from the mean +/- 1 +/- 2 +/- 3 % of data on the chart 68% 95% 99.7% Along with variance calculations, a statistical control chart is likely generated that provides information on how many standard deviations out the variance lies. The lower case Greek letter sigma represents \"standard deviation.\" This statistical control chart even has a handy built in normal curve and standard deviations. The dots would represent specific variances. Turning this into an example: Below is the Statistical Control chart for Material Quantity Variances of goat milk used in Gomer's Goat Milk Soap Company. The Company Policies and Procedures of Manufacturing Manual states: \"Any data point that is .85 or more standard deviations from the mean must be investigated.\" The red dot represents a variance that would be investigated, as it is about 2 standard deviations from the mean (far more than more than .85). Therefore the red data point is outside of 95% of the past variance information. It also is negative. (You might have to tilt your head to see it as negative.) The blue dot represents a variance that would not be investigated. The blue dot is closer to the mean than .85 deviations away. A real statistical control chart would show the specific standard deviation associated with each point. There would be no need to estimate. Or there would be horizontal lines that clearly delineate where the \"cutoff\" standard deviation lies, as seen below with the green dotted lines. Any point outside those lines, meaning above or below them, would merit investigation. As for the yellow dot...It is clearly more than .85 deviations away from the mean. If the policies and procedures manual stated that all variancesboth Favorable and Unfavorablethat are .85 standard deviations out must be analyzed, then the data point represented by the yellow dot should be investigated. Even Favorable variances that are beyond the stated limits should be looked at, in accordance with Management by Exception. A highly favorable variance may provide insight into a valuable practice within one area of the company that could be shared. What should be done about variances designated as \"exceptional\" by the Management by Exception process? As mentioned above, Favorables may offer opportunities company-wide, if good practices can be implemented throughout the manufacturing process. Unfavorables should be understood and perhaps procedures should be altered or the standards on which the variances were calculated need updating. If variances are used as solely punitive measures for those responsible, the whole purpose can backfire because low morale can infiltrate many of the variances, sending them further into the U category. FAVORABLE OR UNFAVORABLE DESIGNATIONS Many of the reasons given below can overlap; also one variance can impact another. Both positive and negative outcomes for the company can result from either F or U variances. There can be good reasons to have Unfavorable variances. For example, employees may be undergoing training that result in an U Labor Efficiency Variance. But in the long run that training will allow more efficient operations. Other factors not listed can also be responsible for favorable or unfavorable variances; the list is not exhaustive. F Materials Price Variance can mean: Competent purchasing manager Quantity discounts sought New less expensive supplier Cheap, poor quality raw materials were purchased Falling prices in raw materials prices Decrease in energy/transportation costs U Materials Price Variance can mean: Incompetent purchasing manager More expensive supplier used Illegal kickbacks to purchasing manager Better quality raw materials were purchased Increase in energy/transportation costs Spike in raw materials costs F Materials Quantity Variance can mean: Materials are of higher quality Employees are better trained and motivated Machinery, equipment, technology is improved ...all leading to less waste, less material required U Materials Quantity Variance can mean: Materials are of lower quality Employees are poorly trained and poorly motivated Breakdowns in machinery, equipment, technology is improved ...all leading to more waste, more material required F Labor Rate Variance can mean: Improved assignment of workers to jobs and taskshigh skilled workers doing high skilled jobs, not low skilled jobs Overtime reduction Wage cuts Unanticipated technology upgrades that reduce labor costs. U Labor Rate Variance can mean: Payroll fraud Employees not assigned to jobs and tasks as plannedcostlier employees used for less skilled tasks Excessive overtime Unbudgeted training that is charged to labor costs Unanticipated promotions for advances in skills Unanticipated Wage increases (for example to attract skills in high demand) F Labor Efficiency Variance can mean: Layoffs so that fewer total employees are used in production Technology replaces employees, fewer total employees used Well trained employees so that fewer total employees are used, fewer hours used Overall efficiencies that translate to fewer wasted hours Higher morale that translates to fewer wasted hours Competent supervision, maximizing efficiency U Labor Efficiency Variance can mean: Overall inefficiencies that translate to wasted hours Low morale that translates to wasted hours Poorly trained employees so that more total employees are needed, more total hours Problems with equipment or raw materials that require more hours Incompetent supervision, leading to inefficiency Unanticipated training that takes employee time Variable Overhead Variances As these are based on projections of both total overhead and cost driver estimates (such as labor hours), a large variance generally indicates inaccuracies in the estimations. The labor efficiency and the variable overhead efficiency will be Favorable or Unfavorable together because the equation is the same for each (when direct labor hours is the cost driver or allocation base, and it very often is.)