WHITE CELLS ARE ADJUSTABLE

Kristoffer Burnett - Certified Management Accountant, 2009-2011

Direct Labor Variance Example

Total Direct Labor Variance
1

Hours 98,832 87,377 50,379 236,588

Actual Results Rate $ 10.86 14.38 18.09

2

Total $ 1,073,316 1,256,481 911,363 $ 3,241,160

Hours 98,832 87,377 50,379

Flexible Budget Rate $ 11.07 14.35 18.44

3

Total $ 1,094,070 1,253,860 928,996 $ 3,276,926

Hours 100,117 80,603 53,384 234,104

Static Budget Rate $ 11.07 14.35 18.44

4

Total $ 1,108,295 1,156,653 984,408 $ 3,249,357

DL hours used in production Department A Department B Department C Total

DL Rate Variance Variance analysis Department A Department B Department C Total $ (20,755) 2,621 (17,633) (35,766)

DL Efficiency Variance (14,225) 97,207 (55,412) 27,570

Total DL Variance (34,980) 99,828 (73,045) (8,196) Negative variances are favorable, costs were less than planned

DL Efficiency Variance Actual Total Hours DL hours used in production Department A Department B Department C Total 236,588 236,588 236,588

Actual Mix

Budgeted Rate 11.07 14.35 18.44

6

Total $ 1,094,070 1,253,860 928,996 $ 3,276,926

Actual Total Hours 236,588 236,588 236,588

Budgeted Mix

Budgeted Rate 11.07 14.35 18.44

7

Total $ 1,120,055 1,168,926 994,854 $ 3,283,834

Budgeted Total Hours 234,104 234,104 234,104

Budgeted Mix

Budgeted Rate 11.07 14.35 18.44

8

Total $ 1,108,295 1,156,653 984,408 $ 3,249,357

41.8% $ 36.9% 21.3%

42.8% $ 34.4% 22.8%

42.8% $ 34.4% 22.8%

DL Mix Variance Variance analysis Department A Department B Department C Total $ (25,985) 84,934 (65,857) (6,908)

DL Yield Variance $ 11,760 12,273 10,445 34,478

DL Efficiency Variance $ (14,225) 97,207 (55,412) 27,570 Negative variances are favorable, costs were less than planned

ITEM TO CHART:

Department A Dropdown menu

$0

Total DL Variance Breakdown

DL Efficiency Variance Breakdown

($5,000)

($10,000)

($15,000)
$11,760

($20,000)
($25,985)

($25,000)

($30,000)

($35,000)

($40,000) Department A

DL Rate Variance

DL Efficiency Variance

Total DL Variance

DL Mix Variance

DL Yield Variance

Notes: 1 2 3 4 5 6 7 8 Note that the DL variances focus on hours used in production. Contrast this with the flexible budget, which focused total hours. The DL Rate Variance measures the effect on Total DL Variance due to differences in budgeted and actual DL hourly rates. The DL Efficiency Variance measures the effect on Total DL Variance due to differences in budgeted and actual individual department hours. Equals "Static Budget" - "Actual Results" OR "DL Rate Variance" + "DL Efficiency Variance" Mix = individual department hours / total hours. The DL Mix Variance measures the effect on the DL Efficiency Variance due to differences in the budgeted and actual mix of hours. The DL Yield Variance measures the effect on the DL Efficiency Variance due to differences in budgeted and actual total hours. DL Mix Variance + DL Yield Variance