Poor supervision is one possible cause of an unfavorable __ variance.
A fixed overhead budget
B labor rate
C material price
D labor efficiency
The correct answer and explanation is:
The correct answer is D) labor efficiency.
Explanation:
An unfavorable labor efficiency variance occurs when employees do not perform as efficiently as planned, leading to more labor hours being required to produce a given level of output than was originally expected. This variance is often caused by factors like poor supervision, inadequate training, or inefficiencies in work processes.
Supervision plays a significant role in ensuring that employees follow established procedures, maintain a steady work pace, and adhere to safety and operational guidelines. If supervision is poor, employees may not receive the necessary guidance or feedback to stay on track, resulting in inefficiencies in their work. For example, supervisors might not identify or address skill gaps, poor work habits, or time management issues that hinder productivity.
Labor efficiency variance is calculated by comparing the actual labor hours spent on production to the standard labor hours expected for the level of output achieved. The formula for labor efficiency variance is: Labor Efficiency Variance=(Actual Hours−Standard Hours)×Standard Rate\text{Labor Efficiency Variance} = (\text{Actual Hours} – \text{Standard Hours}) \times \text{Standard Rate}
If actual labor hours exceed standard hours, and if this overrun is attributed to poor supervision, the result is an unfavorable labor efficiency variance. In such a case, the company may need to adjust its management practices to ensure better supervision, training, and resource allocation to improve labor productivity.
In contrast, other variances like material price or labor rate variances are related to the cost of resources, not their efficiency. A poor labor rate variance would result from paying higher-than-expected wages, while a material price variance occurs when the cost of materials exceeds the expected price. Both of these are distinct from labor efficiency variance, which specifically measures how well labor resources are being utilized.