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petals
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Posted: 15 Jul 2011 at 14:32 \| IP Logged

This was a question from a quiz from Managerial Accounting.
What would you pick as the answer? Additionally, is a labour efficiency variance charged to Manufacturing Overhead or a different account?

A labour efficiency variance resulting from the use of poor quality materials should be charged to:

A. manufacturing overhead
B. the purchasing agent
C. the production manager
D. the engineering department

cassinova73
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Posted: 18 Jul 2011 at 11:46 \| IP Logged

I would say the answer is A. for one the question didnt say whether it was a favorable or unfavorable variance. since they use poor quality material i would assume its unfavorable. while the variance is the purchasing managers fault i dont believe he/she would be personally charged for it. unless they are using responsibility accounting then maybe but the question just seems vague...

also the standard amount is only a budgetted amount so the actual amount would be charged to MOH and i figured management would simply discuss the variance and work towards getting it correct the next time

puckhead23
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Posted: 18 Jul 2011 at 13:11 \| IP Logged

cassinova73 wrote:

while the variance is the purchasing managers fault i dont believe he/she would be personally charged for it. unless they are using responsibility accounting then maybe but the question just seems vague...

This question seems awfully vague. I could see a purchasing manager getting charged under some sort of responsibility accounting methodology. I think this is dependent on how an organization does its reporting. From a strictly departmental perspective, direct labor variances will hit a department directly, meaning the production manager incurs the expense.

Was there any other info provided in the question?

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petals
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Posted: 18 Jul 2011 at 13:26 \| IP Logged

That was the whole question and it was a quiz from the chapter on Direct Materials and Direct Labour variances.

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