# Budgeting - Variance Analysis help!!!

Prepare the direct labour cost statement from the activity data provided

Budgetitems produced 18000 , budget 288000 hours, budget cost 1728000
Actual items produced - 17000, actual hours used 280500, actual costs 1626900

Direct Cost statement:-

standard direct cost of production
Variances:-

Labour Rate
Labour Eficiency
Labour Cost

• Dear Alex
I've attached a worksheet to try to help.
1. Draw up a table with 5 columns. Use column 1 to put your row headings in, column 2 has the original budget, column 3 is the flexed budget based on standard hours per unit and the standard rate per hour, column 4 is the standard cost of the hours worked (and paid), and column is the actual cost.
2. Row headings are Production, Labour, hrs per unit, total hours, rate per hour, cost and variances.
3. Take the data given in the question and enter it onto the table in the appropriate row and column. I've entered this data in black font
1. Budget items produced 18000 in the orginal budget column and on the Production row.
2. budget 288,000 hours, in the original budget column and on the total hours row
3. budget cost £1,728,000 original budget column and the cost row
4. Actual items produced - 17000 in the flexed to output column and on the Production row.
5. actual hours used 280500 in the flexed to input column and on the total hours row
6. actual costs £1,626,900 in the actual cost column on the cost row
4. Now carry out your calculation to find the standard hours per unit and the standard hourly rate I've entered these calculated values in blue font
1. Total 288,000 standard hours needed to make 18,000 units: 16 standard hours per unit
2. £1,728,000 budgeted cost for 288,000 standard hours of labour: Standard rate per hour £6.00
Enter these standard amounts in the flexed columns
5. Calculate the standard hours needed for the units actually produced (this is the flexed to output total hours) 272,000 hours
6. Multiply the total standard hours for actual production 272,000 hours by the Standard rate per hour £6.00 to find the standard labour cost of actual production £1,632,000 which is entered on the cost row
7. In the flexed to input column multiply the actual hours used 280,500 by the Standard rate per hour £6.00 to find the standard cost of the hours worked £1,683,000
8. You now have a total cost value for each column and can now find the variances
1. Labour Rate is the difference between the standard cost of the labour hours paid and the actual cost. Look at the flexed to input cost £1,683,000 and take away the actual cost £1,626,900 to find £56,100 fav
2. Labour Efficiencyis the difference between the standard cost of the units produced (our flexed to output cost) and the standard cost of the hours worked £1,632,000 less £1,683,000 which gives a variance of £51,000 adverse
3. The Labour Cost variance is the difference between the flexed to output cost £1,632,000 and the actual cost £1,626,900 to give £5,100 favourable
Sandy
[email protected]
www.sandyhood.com
• Thanks very much for your help Sandy.
• hi, I have my CBA in a week & need help with variance analysis, can anyone explain the steps to answering this question please:- Prepare the raw material cost statement from the activity data provided Budget items produced 63,000 budget 31,500Kg used, budget cost 94,500 Actual items produced - 65,000, actual Kg used 33,500, actual costs 99,000 Direct Cost statement:- standard direct cost of production Variances:- Labour Rate Labour Eficiency Labour Cost Thanks
• Ellie,

See my answer to your other thread in the Diploma forum. I've just noticed that Sandy has answered the same question above. Either will give you the method to work out your labour variances. Material variances are calculated exactly the same way, just different units (price and kg rather than rate and hours), so you should be able to apply exactly the same method to answer your material questions. If you're still stuck come back.