Backwards Variances

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hello all,
I was wondering if I could get some help on calculating backwards variances.
We were given this Question in class yesterday....

Ayatee makes a product. Standard direct material cost is 16 kilos @ £6 per kilo. Standard direct labour cost is £12 per hour times 6 hrs. Variances reported were:

Direct Material price £18,840 Favourable
Direct Material usage £480 Adverse
Direct labour rate £10,598 Adverse
Direct labour efficiency £8,478 Favourable
Direct wages were £171,320
Direct material actual cost was £5.50 per kilo
No closing stocks
CALCULATE
Actual output
Actual hrs worked
Average actual wage rates
Actual number of kilos purchased and used.

I know everybody is busy, so I'm not really asking people to spend time on the question, but some logical advice on how to figure out the question would be great. I have no problem working out variances but I'm struggling work it all out backwards.
Thanks for your time in reading this far too long post.
Regards, JC.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Backwards Variances

    JC
    Actual Output
    I'll go through this using the labour information, because we have the total actual cost.

    We know that the labour efficiency variance is the difference between the standard amount of time needed for actual production and the actual material used, all at standard cost per hour.

    And that the labour rate variance is the difference between the actual total wage cost paid and the standard price for the actual hours paid.
    So look at what the facts given enable us to do:
    Actual wage cost
      £171,320
    Labour rate variance
    £10,598 adverse
    so the standard cost of the hours worked was £10,598 less than the actual cost
      £160,722
    Labour efficiency variance
    £8,478 favourable
    so the standard cost of the actual production was £8,478 more than the standard cost of the hours worked
      £169,200
    And we know that the standard labour cost of one unit is £12 x 6 hours = £72
    So the actual production was 2,350 units

    I think that answers Q1, and enables you to work out the answers to Q2, Q3 and with some calcs using the actual units produced, work out the kilos purchased and used.

    If you'd like more help say so

    sandy.hood@chichester.ac.uk
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Backwards Variances

    Thank you so much Sandy. Your information helps no end.
    Regards, JC
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Backwards Variances

    I hope this example helps too

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