Management Accounting II

Assignment Presentation

Phoon Pui Yan QIUP-201604-000791

 Reasons caused all the variances
occurred
Direct Material Cost Variance
Variance Reasons

Controllable:
 Purchase of lower quality materials (this will be reflected in adverse material usage variance)
Favorable Material Price  Implementation of better procurement practices (e.g. invitation of price quotations from multiple
suppliers)
RM10,000 (F)
Uncontrollable :
 A fall in market prices.

Controllable :
Adverse Material Usage  Poor management of material.
RM5,000  Purchase lower quality materials (this will be reflected in a favorable material price variance).

Uncontrollable:
 Defects in machinery during the process of production.
 Reasons caused all the variances
occurred
Direct Labor Cost Variance
Variance Reasons
Controllable:
 Employment of skilled people.
Adverse Labor Wage Rate  Inefficient hiring by the HR department (overstaff)
RM 2,400 (A) Uncontrollable:
 Increase in labor rate.
 High demand of labor would push the labor rate upward

Controllable:
 Unskilled people
Adverse Labor Efficiency
 Use of poor quality of raw materials requiring more time to complete work.
RM 3,600 (A)
Uncontrollable:
 Decrease in staff morale and motivation
 Reasons caused all the variances
occurred
Fixed Overhead Cost Variance
Variance Reasons
Adverse Fixed Overhead Expenditure Controllable:
 Expansion of business undertaken during the period
RM 2, 000 (A)
Uncontrollable:
 Increase in cost of services used (eg: rental, insurance premium)

Favorable Fixed Overhead Capacity Controllable:

Volume
 Fully utilized the plant capacity.
 Labor working overtime.
RM 30,000 (F)

Adverse Fixed Overhead Efficiency Controllable:

 Labor force working less efficiently (due to unskilled labor)

RM 6,000 (A)
 Use of low quality material and defective tools
 Direct labor rate and efficiency
variances could be interrelated

Adverse Labor Wage Rate RM 2,400 (A)

Adverse Labor Efficiency RM 3,600 (A)

 Increase in minimum wage rate > Adverse labor wage rate variance

 Unskilled labor > taking more hours > Adverse labor efficiency variance

 Employed skilled worker > higher pay > Adverse labor wage rate variance

 Low quality material / inadequate equipment > excessive amount of labor

time >Adverse labor efficiency variance
Thank You