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T Co usually has a quarterly labour cost of $2,500,000. Material costs (mainly copper) were $3,000,000 in January to March. The worldwide cost of copper has increased in the second quarter by 15%. Overheads were $45,000,000 in January to March.
Which TWO of the following variances for April to June are worth investigating as the reasons for the variance are unknown?
1.Total direct labour variance of $400 adverse
2.Overhead expenditure variance of $4,000,000 adverse
3.Materials price variance of $450,000 adverse
4.Sales volume variance of $3,000,000 favourableWhy are you setting me a test question? You must have an answer in the same book in which you found the question, and so in future ask about whatever it is in the answer that you do not understand. Then I will explain!!
There is no point in investigating the materials price variance, because the worldwide cost has increased by the same %age so the reason for the variance is obvious.
There is little to be gained from investigating the labour variance – a difference of $400 on an expected $2,500,000 is trivial.
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