Grade 2 labour
5900x0.30X$16 590x0.35X$16 6000x0.35X$16
=28320
=33040
=33600
Grade 1 labour
5900x0.15x$12 xx 6000x0.15x$12
=10620
=10620
=10800
$116820
$114460
$116400
$2360U* $1940 F Total mix
variance Total yield variance U
Total efficiency variance F = favorable effect on operating profit U = unfavorable effect on operating profit.
The direct manufacturing labour yield variances are:
Grade 3 labour (5900 — 6000) xxx x $24 = $1200F
Grade 2 labour (5900—6000) xx) Xx 560F
Grade 1 labour (5900— 6000) xxx x $12 = 180F
Total direct manufacturing labour yield variance
$1940F
Direct manufacturing
Actual direct Budgeted directLabour mix variance Manufacturing manufacturing Actual total
Budgeted For each input labour input - labour input x quantity
of all direct x price Mix mix manufacturing manufacturing
Percentage percentage labour inputs used labour input The direct manufacturing labour mix variances are:
Grade 3 labour (0.55 — 0.50) xxx x $24 = $7080 U
Grade 2 labour (0.30—0.35) xxx x $16 = 4720 F
Grade 1 labour (0.15 —0.15) xx Ox 5900 x $12 = Total direct manufacturing labour mix variance $2360 U
The unfavorable mix variance occurs because a greater proportion of work was done by the more costly Grade 3 labour. Grade 3 labour accounted for 55% of the total actual direct manufacturing labour-hours but had been budgeted to handle only 50%. Grade 2 labour did a smaller proportion of the work. Aliya may have altered the mix of workers for reasons of availability or to achieve greater efficiency despite the higher costs. As
a result of the change in mix, the average budgeted cost per direct manufacturing labour-hour in the actual mix
10
[€116820 (Exhibit 17.4, column 1) ÷ 5900 = €19.80) was higher than the average budgeted cost per direct manufacturing labour-hour in the budgeted mix [$114460 (Exhibit column 2) ÷ 5900 = $19401. The mix variance helps managers understand how budgeted costs change as the actual mix varies from the budgeted mix. The favorable yield variance indicates that the work was completed faster — in 5900 actual total hours compared with budgeted total hours. Perhaps this result is due to the extra time spent by Grade 3 labour.
But did the mix-versus-yield
trade-off reduce cost No, because the overall direct manufacturing labour efficiency variance is unfavorable. The analysis helps managers understand that shifting to a higher skills mix will only be worthwhile if the total time taken can be further reduced. Managers would then have to consider ways to achieve this goal.
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