Chapter five measuring yield, mix and quantity effects learning Objectives


Exhibit 17.3 Direct manufacturing labour price and efficiency variances for Aliya



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Exhibit 17.3 Direct manufacturing labour price and efficiency variances for Aliya
Ltd for June 2002
Flexible budget Actual costs budgeted inputs Actual inputs)
Actual input allowed for actual x Actual prices x Budgeted prices outputs achieved x Budgeted price)
(2)
x Budgeted prices
(1)
(3)
Grade 3 labour xxx Grade 2 labour xxx Grade 1 labour 885 xxx 11505 =10620 =10800
$118000 $116820 U $420U
Total price variance total efficiency variance
U
Total flexible-budget variance explore the reasons for the unfavorable efficiency variance - for example, was it caused by absenteeism, labour turnover, processing problems or the change in the mix of workers To further understand this last issue, the unfavorable total direct manufacturing labour efficiency variance of €420 maybe divided into yield and mix variances in the same way that we divided the direct materials efficiency variance in the preceding section.
8

Keeping the budgeted input mix unchanged, the total direct manufacturing labour yield variance is the difference between two amounts (1) the budgeted cost of direct manufacturing labour based on the actual total quantity of all direct manufacturing labour used, and (2) the flexible-budget cost of direct manufacturing labour based on the budgeted total quantity of direct manufacturing labour for the actual output achieved. Taking the actual total quantity of all direct manufacturing labour used as given, the total direct manufacturing labour mix variance is the difference between two amounts (1) the budgeted cost of inputs in the actual mix of direct manufacturing labour, and (2) the budgeted cost of inputs in the budgeted mix of direct manufacturing labour.
Exhibit 17.4 presents the computations for the total direct manufacturing labour yield and mix variances for Aliya Ltd in columnar format. These variances can also be calculated as follows:
Direct manufacturing
Actual
Budgeted
Labour yield variance total quantity quantity of all
For each input
= of all direct - direct manufacturing Budgeted direct
Budgeted manufacturing labour inputs x manufacturing price of direct labour inputs allowed for actual labour input manufacturing used output achieved mix percentage labour input

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