(a) Material price Variance = [ Standard price – Actual price ] * Actual Quantity
= [ 5 – 5.75 ] * 2,150
= – 1,612.50 = 1,612.50 Adverse
Material efficiency Variance = [ Standard quantity – Actual quantity ] * Standard price
= [ 2,000 – 2,150 ] * 5
= – 750 = 750 Adverse
(b) Labour price Variance = [ Standard price per hour – Actual price per hour ] * Actual hours
= [ 18 – 20 ] * 188
= – 376 = 376 Adverse
Labour efficiency Variance = [ Standard hours – Actual hours ] * Standard price per hour
= [ 158 – 188 ] * 18
= – 540 = 540 Adverse
(c) The biggest problem Blue Spruce is facing is connected with Material and Labour. The reasons are as follows :
(1) Adverse Material price Variance shows that material is being purchased at higher price than the standard price set for material purchase. This is causing the total cost to increase and profit to decrease .
(2) Adverse Material efficiency Variance shows that quantity of material being used for repair purpose is more than the standard quantity set for repair purpose. This again is causing the total cost to increase and profit to decrease.
(3) Adverse labour price Variance shows that price paid to labour per hour is higher than the price set as standard price to be paid to labour per hour. This is also causing the total cost to increase and profit to decrease.
(4) Adverse labour efficiency Variance shows that hours taken by labour to complete a particular work is higher than the standard hours set to complete a particular work. This is causing the total cost to increase and profit to decrease.
