There are a total of six variances that we can identify from this case which are material price variance, material quantity variance, labor rate variance, labor efficiency variance, variable overhead spending variance and variable overhead efficiency variance. From the calculation, it indicates all the variances are unfavorable except for material price variance. The possible assumption for a favorable material price variance is that MHC has a long-term and good relationship with their suppliers.
As for the labor variances, the causes which may be arise for unfavorable variances is due to hiring high-skilled employees than a task required for them to perform. It is also possible that they have a majority proportion of senior workers in the production process as proven from the actual rate that the company paid which is more than the standard rate. Furthermore, unfavorable efficiency is possibly caused by lack of supervision where workers tend to have idle time or even idle time rooted from machine breakdown where we could identify that the company uses a lot of processing machine to process the chicken into burgers, sausage and nuggets.
In terms of variable overhead variances, both indicate unfavorable. Variable overhead spending variance is unfavorable possibly due to paying higher than expected price per unit where the company has to do a lot of maintenance work to operate the machines.
Recommendations that can be made to reduce the recurrence of unfavorable labor variance are, increase the supervision during production period in order to avoid slack time. In addition, production managers should give reward to the productive workers in order to motivate them to increase the productivity. The production managers should also plan an effective working schedule as a tool to have a continuous production.
In favor of variable overhead variances, the production managers should alert the workers when the variable overhead costs used are out of line with the expected cost. The reason is that, variable overhead spending variance is controllable; therefore, it is the duty of the managers to reprimand the workers in order to avoid waste.
As stated in the case, the profits have been falling in the operating segment, the major problems that face by MHC is might be first about the coming Hari Raya, secondly is about the demand and supply of halal chickens, and thirdly is about the lack of workers to operate the business. The unfavourable in labour rate variance and the unfavourable in labour efficiency variance is enough to proof that there is something wrong with the workers. The wage rate is significantly high than the standard but the workers still inefficient. There is lost time in excess of standard allowed because MHC should only use 2600 labour hours instead of 3300 labour hours. Furthermore, Jannah also was alarmed Hari Raya was just around the corner so the workers are less motivation to work because they are in Hari Raya mood. Besides that when Hari Raya is around the corner, means that the demand for halal chicken will increase and MHC also needs to boost their supply. But in order to boost their supply, MHC needs more workers to work on it. This will be creating a workers constraint because many workers will take a long holiday for Hari Raya. Workers constraint here means not enough workers in production process. So, to increase the number of workers, MHC try to motivate the workers by increasing the wage paid, that why the actual hourly rate paid is RM9.20 instead of standard rate which is RM9.00.
p/s: tibe2 rse cm nk post bnde2 ni.. phm ke pe yg mal post ni kengkwn?? hee..