A Company Was Experiencing Slow Production Rates, and Lower Production

question 153

Multiple Choice

A company was experiencing slow production rates, and lower production volumes than demanded by management, so a new factory manager was hired. Upon investigation, she found that the workers were poorly motivated and not closely supervised. Midway through the quarter, she started an incentive program and paid out cash bonuses when workers hit their production targets. Within a short time, production output increased, but the bonuses had to be charged to the direct labor budget, and she was worried about the impact of these costs on operating income. This situation could have produced which of the following variances?

• A) Unfavorable materials price variance
• B) Unfavorable materials efficiency variance
• C) Favorable labor efficiency variance
• D) Favorable labor price variance

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Definitions:

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