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What is the equations of total Direct labor budget variance under flexible budget?

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Question added by Abdulqader Ahmed , finance & controlling manager , Clariant Masterbatches (Saudi) Ltd
Date Posted: 2016/05/13
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by Deleted user

Equation based On Standard Costing System with a Flexible Budget. Under Flexible Budget model is prepared on different level of sales of units. As mentioned, using standard costing system equation will be same but direct labor variance numbers will be different due to different level of items of sales.

For Price Variance = Standard labor price (SP) less actual labor price (AP) multiply by actual hours used (AHU). SP-AP*AHU

For Efficiency Variance (Usage variance) = Standard hours allowed (SHA) less actual hours used (AHU) multiply by standard labor price (SP).  SHA-AHU*SP

USE OF PRICE VARIANCE AND QUANTITY (USAGE) VARIANCE EQUATION:

For Price Variance (SP-AP*AHU) = $11-$12*11,900 = ($11,900)

For Efficiency (usage) Variance (SHA-AHU*SP) = 10,200-11,900*$11 = ($18,700)

Total Unfavorable Direct Labor Variance (Price Variance + Efficiency Variance) = ($11,900) + ($18,700) = ($30,600)

Example for Flexible Budget:

Units Sold = 1700                                                               

Standard hours per unit = 6

Standard price per unit = $11

 

Budgeted Direct Labor Cost = 1,700*6*$11 = $112,200

 

Actual hour used = 7

Actual price per unit = $12

 

Actual Direct Labor Cost = 1,700*7*$12 = $142,800

 

Unfavorable Variance = $112,200 - $142,800 = ($30,600)

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