help..!! budgeting exam please

sgafosgafo Settling In NicelyPosts: 21Registered
Can anyone help me please I'm stuck on the following question




  • babsababsa Well-Known Posts: 118Registered
    Hi sagfo,

    I hope this is the right answer I did my budgeting exam nearly 2 years ago. (if not let me have the answers and I will work backward to give you the correct answers.

    Budget Cost £1,728,000 / 288,000 hours = £6 per hour. 288,000 hours / 18,000 items = 16 items per hour.

    Actual Activity at the Standard cost is:- (Standard Direct Labour cost of production)

    17,000 items x 16 items per hours = 272,000 hours x £6 per hour = £1,632,000.

    Labour Rate is:-
    Standard cost £1,632,000 - Actual cost £1,626,9000 = £5,100 F. (This cost saving is due to it costing £5.80 per hour instead of £6.00 per hour).

    Labour Efficiency is:-
    Budget cost £1,728,000 - Standard Cost = £1,632,000 = £96,000 F. (This cost saving is due to production 1000 units less than budgeted for.)

    Labour Cost is:-
    Budgeted Cost £1,728,000 - Actual Cost £1,626,900 = £101,100 F.
  • NpsNps Experienced Mentor Posts: 782Registered
    I've come up with different answers (if wrong, my excuse is that I have an 8month old wriggling on my lap!)

    Labour rate - 56,100 Fav
    Labour efficiency - 51,000 Adv
    Labour cost - 5,100 Fav

    As I say (disclaimer), I'm only half concentrating so won't write out my workings until you confirm the answers are correct. If they are right, I'll explain my workings when baby is having a nap and I can concentrate!
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    I agree
    Labour rate variance £56,100 favourable
    Labour efficiency £51,000 adverse

    Labour cost variance £5,100 favourable

    There are different methods of finding variances.
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  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    Standard direct labour cost of production
    Standard labour cost of the goods produced
    17,000 units x 16 hours/unit x £6/hour = £1,632,000

    Labour rate variance
    Standard cost of the hours worked - Actual labour cost
    280,500 hours worked @ £6.00/hour - £1,626,900 = £56,100 favourable variance

    Labour efficiency variance
    Standard labour cost of the goods produced - Standard cost of the hours worked
    17,000 units x 16 hours/unit x £6/hour - 280,500 hours worked @ £6.00/hour = £51,000 adverse variance

    Labour cost variance
    Standard labour cost of the goods produced - Actual labour cost
    17,000 units x 16 hours/unit x £6/hour - £1,626,900 = £5,100 favourable
    [email protected]
  • NpsNps Experienced Mentor Posts: 782Registered
    Phew, I don't normally like posting if I'm not in a position to double check that I'm correct, so reassuring to have someone confirm for me (and save me typing out my workings!)

    OP - A handy way to remember how to calculate variances.....

    First of all, always flex your budget. And remember that most variances come in sets of 3

    Then write out

    AH x AR =
    AH x SR =
    SH x SR =

    where A=actual and S=standard. The H and R will change depending on what variance you are looking at (in this case H=hours and R=rate). Your first variance of whatever type you are looking at is the difference between the first 2 answers, the second variance is the difference between the last 2 answers and the 3rd of the set is the difference between answers 1&3 (or the sum of the two variances you've just calculated).

    By remembering this format, even if you can't remember the exact formulae for each variance, you can work out the three connected variances and then with a bit of common sense, figure out which answer relates to which variance.

    This format also works for material variances (using quantity and price, instead of H & R), and variable overheads (using H&R again).

    Have I explained that properly or have I just completely confused you? It makes sense in my head anyway!
  • liveprincessliveprincess Well-Known Posts: 214Registered
    Could somebody please advise if I can expect this type of questions in my budgeting exam? I have done all practice assessments on the AAT website but there was not a one question when I had to calculate these variances. My workbook talks about them, and I know it will be a big part of the FNPF unit but will I have to calculate them in budgeting exam as well? It is next week and Im starting to panic...:ohmy:
  • liveprincessliveprincess Well-Known Posts: 214Registered
    anybody? pleassee
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderPosts: 1,461Moderator, MAAT, AAT Licensed Accountant
    Hi liveprincess,
    I sat the exam last year so don't remember, however is it covered in your text book? Chances are, if it is, it is assessable and could come up at the exam.
  • liveprincessliveprincess Well-Known Posts: 214Registered
    hi if something is mentioned in the book doesn't necessarily mean that it would be in the exam as the books are quite detailed sometimes. I sat this today and I didn't have to calculate variances. I also had read AAT requirements for this unit and it's not there either.
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