Conceptual Connection: Assume that Cabanarama develops the standards for materials use, materials price, labor use, and labor wages. Who will be assigned responsibility for each and for any resulting variances? Why?

Once the standards are set, actual results can be compared with the standards and variances can be calculated. Variances are indicators of

potentialseriouspotential

problems. The underlying causes of the variances is reviewed to determine

if corrective action is requiredif production must stopif layoffs are in order

$.$

The most likely variances include the following:

Note: Select the individual that would be assigned to each of the variances listed below and what they would be expected to know.

Materials Purchase Price Variance: Responsibility for this variance lies with the

Materials purchasing managerProduction department managerHuman resources managerPlant manager

$.$ It is this individual who can explain why materials

pricesusageprice and usage

differed from the standards.

Materials Usage Variance: Responsibility for this variance lies with the

Materials purchasing managerProduction department managerHuman resources managerPlant manager

$.$ It is this individual who knows

actual materials used in productionmaterials purchasingscrap materials projected

and why the amount of materials used differed from the standards.

Labor Rate Variance: Responsibility for this variance lies with the

Materials purchasing managerProduction department managerHuman resources managerPlant manager

$.$ It is this individual who knows

the union repwhy wage rates differ from the standardsline labor efficiencies

$.$

Labor Usage Variance: Responsibility for this variance lies with the

Materials purchasing managerProduction department managerHuman resources managerPlant manager

$.$ It is this individual who knows

why actual hours differ from the time standardsthe projected productionwhy wage rates differ from the standards

$.$