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Which of the following is the most likely explanation for an unfavorable materials usage variance and a favorable labor wage variance? a. The new labor contract increased wages. b. Higher quality materials were purchased, resulting in less waste. c. The company experience labor turnover and newer, less experienced workers were hired. d. A new supplier offered a lower price for materials.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 9, Problem 27E
Textbook Problem
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Which of the following is the most likely explanation for an unfavorable materials usage variance and a favorable labor wage variance?

  1. a. The new labor contract increased wages.
  2. b. Higher quality materials were purchased, resulting in less waste.
  3. c. The company experience labor turnover and newer, less experienced workers were hired.
  4. d. A new supplier offered a lower price for materials.

To determine

Indicate the most likely explanation for an unfavorable materials usage variance and a favorable labor wage variance.

Explanation of Solution

Direct material usage (efficiency) variance: It is a measure that determines the variation in between actual and standard quantity of input multiplied by the standard unit price is called material usage variance.

Direct Labor Rate Variance: The direct labor rate variance is a measure to determine the variation in the estimated cost of the direct labor and the actual cost of the direct labor and is multiplied by the actual hours is called direct labor rate variance.

Justification for correct answer:

c.

Higher labor turnover will result in employing less experienced workers will turn into favorable labor wage variance because of fewer rates of wages. However, it may result in unfavorable material usage variance due to less or no experience in job...

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Chapter 9 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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