Vincent Bassani has come to the accounting department for help in interpreting his variance report. He says that he understands that last month was not a very good one for output, but he really thought everyone put forth good effort, so he is confused about the existence of an unfavorable labor efficiency variance. He cites as an example of the workers' effort their willingness to work extra hours to get full output, even when a whole week's worth of production had to be scrapped. He knew that his materials costs would be higher, and that overtime would make his rate variance unfavorable, but he certainly didn't think his workers had been inefficient. Required: Write a short note to Vincent explaining the probable cause of the unfavorable labor efficiency variance
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Vincent Bassani has come to the accounting department for help in interpreting
his variance report. He says that he understands that last month was not a very good
one for output, but he really thought everyone put forth good effort, so he is confused
about the existence of an unfavorable labor efficiency variance. He cites as an example
of the workers' effort their willingness to work extra hours to get full output, even when
a whole week's worth of production had to be scrapped. He knew that his materials
costs would be higher, and that overtime would make his rate variance unfavorable,
but he certainly didn't think his workers had been inefficient.
Required:
Write a short note to Vincent explaining the probable cause of the unfavorable labor efficiency variance
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