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Budgeting and controlSyllabus DVariance AnalysisInterrelationship of Variances

ACCA · Question 25 · Budgeting and control

Section B - Case 2: AeroLogix

AeroLogix provides drone-based medical delivery. The production manager is reviewing the monthly variance report. There is a significant Adverse Labor Efficiency Variance and a significant Favorable Material Price Variance.

Which TWO of the following scenarios could logically explain this combination of variances?

Answer options:

A.

The purchasing department bought cheaper, lower-quality materials that were harder for the workers to assemble.

B.

Highly skilled workers were hired at a premium rate, and they completed the work faster than standard.

C.

A new supplier offered a bulk discount on materials, but the materials required extra manual sorting before use.

D.

New, faster machinery was installed, reducing assembly time, while material prices remained stable.

How to approach this question

Look for a cause-and-effect relationship where saving money on materials directly leads to workers taking more time to do their jobs.

Full Answer

Variances are often interrelated. A favorable material price variance means materials were bought cheaper than standard. If those cheaper materials are of lower quality or require extra prep work (like sorting), it will take the workers longer to process them, resulting in an adverse labor efficiency variance. Options A and C describe this exact trade-off.

Common mistakes

Failing to link the two variances and treating them as isolated events.
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