Exhibit 17.4 Direct manufacturing labour yield and mix variances for Aliya Ltd for June 2002 Flexible budget (Budgeted total quantity of (Actual total quantity Actual total quantity all inputs allowed for of all inputs used of all inputs used actual output achieved x Actual input mix) x Budgeted input mix) x Budgeted input mix) x Budgeted prices x Budgeted prices x Budgeted prices (1) (2) (3) Grade 3 labour xxx xxx 9
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 direct Labour 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.