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Question 4 [10 Marks]

Adam Sandler has been running an electronics manufacturing business for a long time. The company uses Direct Labor Hours as a cost driver for applying overheads to different products. For the following INDEPENDENT situations(1-10), identify which variances would likely occur and would they be favorable (write F), unfavorable (write U) or there would be no effect on that variance (write NE). Assume that in every situation, everything else remains constant.

Direct Materials Price Variance F or UF or NE

Direct Materials Quantity Variance F or UF or NE

Labor Rate Variance F or UF or NE

Labor Efficiency Variance F or UF or NE

Variable Overhead Rate Variance F or UF or NE

Variable Overhead Efficiency Variance F or UF or NE

Situations:

1. Cheap, low cost material is purchased resulting in workers having to re-work on several televisions, and wastage of materials and machine time.

2. Surprisingly, government reduced electricity prices.

3. The workers union successfully negotiated increase in wages. This was not planned!

4. Unskilled, low cost labor was employed. They were a bit lazy too!

5. Graduates from a highly ranked business school were hired in production department who would steal electronic components from the factory.

6. The company hired graduate of SDSB as purchasing manager who could calculate EOQ properly, resulting in getting discounts from suppliers that the company had never enjoyed.

7. The company hired an SDSB graduate who outsourced factory building maintenance to a friend's company which charged higher than the previous contractor.

8. The company produced more than anticipated.

9. The company installed solar power solution that reduced cost of utilities in the factory. This was not planned ahead in time.

10. Unfortunately, the company hired inefficient SDSB graduates in its accounting and finance department.

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