- This topic has 1 reply, 2 voices, and was last updated 7 years ago by
.
- Posts
Hello Mr Moffat, I’m struggling with the following question.Please see.
Budget: Production 270 units Direct labour hours 810 hours Wages cost $4050
(so the standard cost per unit is $15)
During a year a standars was revised for variance analysis purposes to: 4 direct labour hours at $4.5 per hour = $18 per unit
Actual results: Production 300 units Direct labour hours 1140 hours Wages cost $5586
The question is: What’s the total planning variance?
If we calculate it this way: revised cost $18/u less budgeted cost $15/u = $3x300u = $900 (A). But if we calculate it separately for the labour pay rate and efficiency variances it will be $930 (A):
Labour pay rate planning variance: $5-$4.5= $0.5 x 1140hrs = $570 (F)
Labour efficiency planning variance: 3hr-4hr=1hr x 300 units=300hrs x $5 = $1500 (A)
Why this $30 difference occurs ? Am I missing any planning variance that should be included here?Please advise.Thank you!There are two ways of calculating planning and operational variances. The give different answers, but both answers are acceptable in the exam.
The way that you are doing it is the way that the previous examiner preferred, and the variances didn’t ‘add up’.
The current examiner prefer the other way, which is in fact a lot easier. This is the way that I do it in my free lectures, and it will help you to watch them.
- The topic ‘Total planning variance’ is closed to new replies.