Direct Labor Variance Example

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					                WHITE CELLS ARE ADJUSTABLE                                                                                                                                                       © Kristoffer Burnett - Certified Management Accountant, 2009-2011
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               Direct Labor Variance Example

    Total Direct Labor Variance
                                                   Actual Results                                    Flexible Budget                               Static Budget
                  1                     Hours           Rate                Total          Hours           Rate            Total        Hours           Rate            Total
DL hours used in production
Department A                              98,832     $        10.86     $ 1,073,316         98,832     $     11.07     $ 1,094,070       100,117    $       11.07   $ 1,108,295
Department B                              87,377              14.38       1,256,481         87,377           14.35       1,253,860        80,603            14.35     1,156,653
Department C                              50,379              18.09         911,363         50,379           18.44         928,996        53,384            18.44       984,408
                          Total          236,588                        $ 3,241,160                                    $ 3,276,926       234,104                    $ 3,249,357
                                                          2                                                 3                                               4
                                                DL Rate Variance                               DL Efficiency Variance                            Total DL Variance
Variance analysis
Department A                                                                (20,755)                                       (14,225)                                     (34,980)
Department B                                                                  2,621                                         97,207                                       99,828
Department C                                                                (17,633)                                       (55,412)                                     (73,045)
                            Total                                       $   (35,766)                                   $    27,570                                  $    (8,196) Negative variances are favorable, costs were less than planned


      DL Efficiency Variance                                  5                                                              5
                                    Actual Total         Actual          Budgeted                     Actual Total      Budgeted      Budgeted                       Budgeted         Budgeted    Budgeted
                                       Hours              Mix              Rate            Total         Hours            Mix           Rate             Total      Total Hours         Mix         Rate          Total
DL hours used in production
Department A                             236,588              41.8% $         11.07    $ 1,094,070         236,588           42.8% $       11.07    $ 1,120,055         234,104          42.8% $      11.07   $ 1,108,295
Department B                             236,588              36.9%           14.35      1,253,860         236,588           34.4%         14.35      1,168,926         234,104          34.4%        14.35     1,156,653
Department C                             236,588              21.3%           18.44        928,996         236,588           22.8%         18.44        994,854         234,104          22.8%        18.44       984,408
                          Total                                                        $ 3,276,926                                                  $ 3,283,834                                               $ 3,249,357
                                                                              6                                                            7                                                          8
                                                                      DL Mix Variance                                              DL Yield Variance                                       DL Efficiency Variance
Variance analysis
Department A                                                                           $   (25,985)                                                 $      11,760                                             $   (14,225)
Department B                                                                                84,934                                                         12,273                                                  97,207
Department C                                                                               (65,857)                                                        10,445                                                 (55,412)
                            Total                                                      $    (6,908)                                                 $      34,478                                             $    27,570 Negative variances are favorable, costs were less than planned


         ITEM TO CHART:             Department A Dropdown menu



          $0                         Total DL Variance Breakdown                                                                               DL Efficiency Variance Breakdown



    ($5,000)



($10,000)



($15,000)

                                                                                                                                                        $11,760

($20,000)


                                                                                                                                                                          ($25,985)
($25,000)



($30,000)



($35,000)



($40,000)
                                                          Department A
                DL Rate Variance                 DL Efficiency Variance                      Total DL Variance                             DL Mix Variance               DL Yield Variance




Notes:

1    Note that the DL variances focus on hours used in production. Contrast this with the flexible budget, which focused total hours.
2    The DL Rate Variance measures the effect on Total DL Variance due to differences in budgeted and actual DL hourly rates.
3    The DL Efficiency Variance measures the effect on Total DL Variance due to differences in budgeted and actual individual department hours.
4    Equals "Static Budget" - "Actual Results" OR "DL Rate Variance" + "DL Efficiency Variance"
5    Mix = individual department hours / total hours.
6    The DL Mix Variance measures the effect on the DL Efficiency Variance due to differences in the budgeted and actual mix of hours.
7    The DL Yield Variance measures the effect on the DL Efficiency Variance due to differences in budgeted and actual total hours.
8    DL Mix Variance + DL Yield Variance

				
DOCUMENT INFO
Description: Direct labor variances are calculated to compare the actual costs associated with rate and usage of direct labor to their budgeted amounts.
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