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Variance Calculations

Hi all, is there anyone that could go through what I have worked out on this question. I am not sure I have done it quite right!

Budgeted activity:
Production of units = 5,000
Direct materials = 1,000 litres, £10,000
Direct labour = 4,000 hours, £20,000

Actual activity:
Production of units = 6,000
Direct materials = 1,100 litres, £11,100
Direct labour = 4,500 hours, £25,000

I have calculated the standards using the budgeted data:

Labour:
4,000 hours/5,000 units=0.8 hours per unit
£20,000/4,000 hours=£5 per hour

Materials:
1,000 litres/5,000 units=0.2 litres per unit
£10,000/5,000 units=£2 per litre

Calculate the direct labour rate variance:
Actual hours 4,500 x £5 per hour = £22,500
Difference = £22,500-£25,000=£2,500 (adverse)

Calculate the direct labour efficiency variance:
Actual output 6,000 x 0.8 hours per unit = £4,800
Difference = 4,800-4,500=300
In monetary = 300 x £5 = £1,500 (favourable)

Calculate the direct material price variance:
Actual usage 1,100 x £2 per litre = £2,200
Difference = £2,200-£11,100=£8,900 (adverse)

Calculate the direct material usage variance:
Actual output 6,000 x 0.2 litres = 1,200 litres
Difference =1,100 - 1,200 = 100 litres
In monetary = 100 x £2 = £200 (adverse)


Comments

  • PeterCPeterC Registered, Tutor Posts: 150
    A good answer with just one error.
    The labour variances are correct
    Material variance should be £100 adv (price) and £1,000 fav (usage)

    The problem is in your calculation of standards for material. You have:
    £10,000/5,000 units=£2 per litre
    This would be £2 per unit!
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