PEV November 2004 ,Task 1.2

Ora

Could anyone help me with this question PEV ,November 2004 Task 1.2 answer to purchasing Manager

Many Thanks

SandyHood

WE know the production manager is likely to be held responsible for 2 variances:

1. Material usage £5,200 adverse
2. Labour efficiency £3,900 adverse

The inferiority of the 500 kgs of material would explain part of the £5,200 adverse variance. Afterall, he used 20,800 kgs when 6,500 units should use 19,500 kgs. But he isnot fully excused. 500 kgs on top of the expected 19,500 kgs only comes to 20000 kgs. So the £5,200 variance can be split into £2,000 which is due to the faulty material, and £3,200 which is still unexplained, and we can conclude the fault of poor production management.
As for the labour, 150 hours to wash down the machines does sound a lot but we can accept until more information is provided.
150 hours out of the 7,150 hours still leaves 7,000 hours worked on production. If the standard hours for 6,500 units is 6,500, then 500 hours work is still unexplained. This leaves us with £6 x 150 hours = £900 adverse vefficiency variance due to time needed to clean up after faulty material and 500 x £6 = £3,000 labour efficiency variance due to poor production management.