Chapter five measuring yield, mix and quantity effects learning Objectives


Direct manufacturing labour yield and mix variances



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Applied Econometrics using MATLAB, Management and Cost Accounting, case study 301.docx
Direct manufacturing labour yield and mix variances
Direct manufacturing labour variances are calculated in much the same way as direct materials variances. We again use the Aliya Ltd example to illustrate direct manufacturing labour price, efficiency, yield and mix variances. Aliya has three grades of direct manufacturing labour Grade 1, Grade 2 and Grade 3. Budgeted costs for June 2002 follow hours of Grade 3 labour at $24 per hour
$72000 2100 hours of Grade 2 labour at $16 per hour
33600 900
hours of Grade 1 labour at $12 per hour
10800 6000 total hours Actual results for June 2002 show that the work was completed in 5900 hours hours of Grade 3 labour at $23 per hour
$74 635 1770 hours of Grade 2 labour at $18 per hour 31 860 885 hours of Grade 1 labour at $13 per hour
11 505 5900 total hours Budgeted costs Total direct manufacturing labour variance to be explained $1 600 U
7
Total flexible budget direct materials variance
Total direct materials price variance Total direct materials Efficiency variance $4450 U
Total direct materials mix variance $3250 F Total direct materials Yield variance $7700U

Exhibit 17.3 presents the direct manufacturing labour price and efficiency variances for each employee category and in total. The total price variance is unfavorable ($1180 U) because of the higher wage rates paid to Grade 1 and Grade 2 labour. Managers would want to understand why the wage rates were higher — for example, did the higher rate result from a general shortage of Grade 2 labour or from factors specific to Aliya? The total efficiency variance is unfavorable ($420 U, primarily because of the greater number of hours worked by
Grade 3 labour. The budgeted costs of these hours were only paria1ly offset by the fewer hours worked by Grade 1 and Grade 2 labour and the fewer total hours worked. Aliya’s managers would want to

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