The result is favorable as less polyester and lining material has been utilized than the standard quantity.
Possible causes:
- Higher quality of materials purchases than the standard.
- Effective usage of skilled labor / experienced or well-trained workers.
- Productivity improvement through effective policies and training programs.
- Better use in automated manufacturing tools and processes.
- Proper supervision.
b. Direct material price:
The result is adverse as more cash has been disbursed for polyester and lining material than the standard cost for these types of materials.
Possible causes:
- Increase in market price level.
- Higher quality of materials purchases than the standard.
- High bargaining power of suppliers.
- Loss of purchases discounts due to small orders.
- Inexperienced in price negotiation with suppliers from procurement staff.
For example: Quality of materials purchases affects direct material variance in either positive or negative ways. If the company has tendency to save money from buying lower quality of material purchases than the standard, it will result in adverse direct …show more content…
In a company, not all tasks require skilled labor as it depends on how complicated a task is. When tasks are assigned to workers, it is necessary to require more experienced labors if they are too complex and take too much time to solve. This case results in favorable direct labor efficiency variance. Similarly, in case the tasks given are not too complicated, handling over them to highly trained workers will lead to adverse direct labor rate variance as experienced labors are paid higher wages than the others. In contrast, if a task requiring workers at expertise level is given to poor-trained ones, it will result in favorable direct labor rate variance as wages paid are lower but unfavorable direct labor