Material Price Variance Unfavorable

Material usage variance favorable

labor rate variance favorable

labor efficiency variance unfavorable

Managers at Tempro are considering the following changes in
operations for the next year ending December 31, 2006

1. An across the board pay increase of 5% will be given to
all personnel.

2. the purchasing department will be allowed to purchase
lower grades of material

3. several key production workers will be transferred into
managerial positions. These workers will be replaced either by new hires or by
production personnel who will be transferred from another department.

4. additional inspectors will be hired to ensure quality
production. The cost of these inspectors will be considered administrative and
general expense.

Required: Assuming that product standards are not changed
from the previous year, what impact, if any, would you expect each of the
changes to have on the company’s variances? Consider each decision separately,
and identify the variance that would be affected by the decision and whether
the change would increase or decrease the prior-year variance. Explain your
answer.