For the quarter just ended, Halston, Inc. reported the following variances in one of its manufacturing departments:Material price variance, UMaterial quantity variance, FLabor efficiency variance, FLabor rate variance, negligibleMachine hours efficiency, FThe sum of the favorable variances exceeded the unfavorable materials price variance by a considerable amount. The quality of the output from the department was the same as usual. Halston operates very close to a JIT system for materials purchases, with virtually all material acquired during the quarter being used in manufacturing activities.Required: Is there any connection among these variances? If so, explain.

Question

What will be an ideal response?

Answer 1

While a connection between these variances cannot be guaranteed, the following scenario is plausible. Better-than-standard quality materials were purchased, leading to an unfavorable material price variance. When these materials were used during the period (JIT basis for raw materials purchases), favorable efficiency variances arose because the material was easier for labor and machines to process.
Also may include that the favorable material quantity variance is due to the better-than-standard quality materials leading to less spoilage/breakage.