Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 33

The head of the research and development department at a manufacturing organization believes that his team lacks expertise in some areas, and he decides to hire more experienced researchers to assist in the development of a new product. Which of the following variances are likely to occur as the result of this decision?
1. Favorable labor efficiency variance.
2. Adverse labor rate variance.
3. Adverse labor efficiency variance.
4. Favorable labor rate variance.

Answer options

• A. 1 and 2.
• B. 1 and 4.
• C. 3 and 4.
• D. 2 and 3.

Correct answer: C

Explanation

Hiring more experienced researchers is likely to lead to an adverse labor efficiency variance, as new team members may take time to integrate and become fully productive. Additionally, the labor rate variance may be unfavorable due to higher wages for these skilled hires. Thus, the correct answer is C, which includes both adverse variances.