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Hi sir
Example 5 on page 61. 5% of the hours paid for are idle. my concern is when we are making budget, we will work through what we think the budgeted production will cost us. effectively there we will be talking of the hours we will going to pay for. in our budget we have included 400hrs of idle time. why did you computed for standard idle hours of what was paid when our budget was only 400hrs of idle time? i thought we should compare the actual idle hours for actual production to the budgeted idle hours. little bit confused here.
thanksHave you watched the lectures working through this chapter?
For variance analysis we never compare the actual results with the original budget – we flex the budget as I explain in my free lectures on basic variances.
If they pay for more hours then we would expect there to be more idle hours. The standard idle hours should be 5% of the hours they actually paid for.
We examine whether or not they worked too many or to few hours when we calculate the efficiency variance.
(I hope that you are watching the free lectures because it would be a complete waste of time to use the notes without watching the lectures. They are only lecture notes and it is in the lectures that I work through the examples and explain and expand on the notes.)
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