EXERCISE 11-10 (20 MINUTES)

2. Favorable variances can be as much a matter of concern as unfavorable

variances. In particular, the favorable maintenance variance should be

investigated. Is scheduled preventative maintenance being carried out?

In terms of percentage deviation from budgeted allowances, the rework

time variance is even more significant (equal to 15% of the budget al-

lowance). This unfavorable rework time variance may be a result of poor

maintenance of machines. Some may say that if the two variances are

related, then the trade-off is a good one, since the savings in mainte-

nance cost is greater than the added cost of rework time. But this is

shortsighted reasoning. Poor maintenance can reduce the life of equip-

ment, as well as decrease overall output, thereby costing far more in the

long run than any short-run savings.