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In a standard costing system, some favorable variances are not indicators of efficiency in operations. For example, the materials price variance, the labor rate variance, the manufacturing overhead spending and budget variances, and the production volume variance are generally not related to the efficiency of the operations. On the other hand, the materials usage variance, the labor efficiency variance, and the variable manufacturing efficiency variance are indicators of operating efficiency. However, it is possible that some of these variances could result from standards that were not realistic. For example, if it realistically takes2.4 hours to produce a unit of output, but the standard is set for2.5 hours, there should be a favorable variance of0.1 hour. This0.1 hour variance results from the unrealistic standard, rather than operational efficiency.
I don't think so. Under costing almost always indicates a problem either in the planning or in the implementation and it must be checked to identify the root cause and plan to fix it.
May be an indicator of a budget slac or a change in prices.
No . A decrease in the cost of raw materials may cause a favourable variance.
it depends on the overall variance figure and how it is acheived.
for example, a favourable materail price variance can be acheived through buying low quality material, gaining excessive discounts and favourable price movements.But on the side, material usage variance might be largely adverse due to inefficient usage, low quality,hig wastage, material detoriation due to poor handling or lack of usibility.
so, in a nutsheel,its all related to each other and hence difficult to point out in separation.
Favorable Variance may be due to under filling or Production is not following up the recepie
