Interaction of Materials and Labour Variances

question 78

Essay

Interaction of materials and labour variances
For the quarter just ended, BoSan Pty Ltd reported the following variances in one of its manufacturing departments:
The sum of the favourable variances above exceeded the unfavourable materials price variance by a considerable amount. The quality of the output from the department was the same as usual. Practically all of the raw material used in this quarter was purchased in this quarter.
Is there any connection between these variances? If so, explain.

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Definitions:

Incidental Beneficiary

A third party who unintentionally benefits from a contract made between two other parties, without having any enforceable rights under that contract.

Novation

A legal process where an old debt, obligation, or contract is replaced by a new one, effectively extinguishing the original agreement and substituting it with a new party or terms.

Obligor

An Obligor is the party in a contractual agreement who is bound to provide a specified performance to another party, the obligee.

Obligee

The party in a contractual agreement who is owed a duty or obligation by another party, the obligor.