Cost Accounting 2

(ch:2)
Analysis Of Variations Of
Direct Costs
Section No:4
P r e p a r e d by : m a r i n a R o m a n y
 second: Analysis Of The Total Variance Of
Direct wages.
to do an analysis of the total variance of direct wages
you will do this through the following steps:
1- Determine standard cost of direct wages.
= (number of standard hours per unit of product * rate of hourly standard wages *
actual production)

2- Determine actual cost of direct wages.

= (number of actual hours per unit of product * rate of hourly actual wages * actual
production)
3- Determine total variance of direct wages.
= (Standard cost of direct wages – actual cost of direct wages)

4- Analysis of total variance of direct wages.

– Binary analysis of the total variance of D.L
1- efficiency variance (EV)
=(standard hours of actual production -actual hours of actual production)*
standard wage rate

2- wage rate variance (WV)

=(standard wage rate-actual wage rate)* actual hours
– Triple analysis of the total variance of D.L

1- efficiency variance
=(standard hours of actual production -actual hours of actual production)*
standard wage rate

2- net wage rate variance

=(standard wage rate- actual wage rate)*standard hours of actual
production

3- mixed wage rate variance

=(standard hours-actual hours)*(actual wage rate-standard wage rate)
 Questions
1. Here is the following data extracted from a manufacturing company to produce a standard 4000
units and an actual 3000 units:
Standard data Actual data
Direct labor Standard hours = 3 the cost of direct wages at the end of the year 44,000
Standard per rate = 5 pounds pounds
actual wage rate = 4 pounds.

In light of the previous data, answer the following:

- The total variance of the direct wages is ………...
A. -1000 EGP.
B. +1000 EGP
C. +2000 EGP.
D. None of the above

Standard cost of direct wages = (3*5*3000) = 45,000

Actual cost of direct wages = 44,000
- the efficiency variance for direct wages is …….
A. -10,000
B. +10,000
C. +9000
D. None of the above
efficiency variance =((3*3000)-(3.6667*3000))*5 = -10,000

- The wage rate variance for direct wages ……

A. -10,000
B. +11,000
C. +12,000
D. None of the above
Wage rate variance= (5-4)*(3.6667*3000)= +11,000
2- Assuming that one of the manufacturing companies produces a typical product and the
product needs two types of labor (regular labor and skilled labor). The following are the cost data
for this company for the first quarter of 2017

Standard data Actual data

Standard time Wage rate Production Actual time Wage rate Production
volume volume

Ordinary 6 hours 20 EGP per hour - 6.4 hours 20 EGP per

labor hour

Skilled labor 4 hours 40 LE per hour - 3.6 hours 50 L.E per

hour

Units - - 900 units 1000 units

in light of the previous data, answer the following:

- The efficiency variance for skilled and ordinary
workers is ………….
A. +24,000 EGP.
B. +8000 EGP
C. -24,000 EGP.
D. None of the above.

The efficiency variance for ordinary workers= ( (6*1000)-(6.4*1000)

)*20 = -8000
The efficiency variance for skilled workers=( (4*1000)-(3.6*1000) ) *40=
+16,000
The efficiency variance for skilled and ordinary workers= -8000+16000=
+8000
- The wage rate variance for skilled and ordinary
workers is ………….
A. zero
B. + 36,000 EGP
C. -36,000 EGP
D. None of the above.

The wage rate variance for ordinary workers= ( 20-20)*(6.4*1000) = zero

The wage rate variance for skilled workers=( 40-50) *(3.6*1000)= -36,000
The wage rate variance for skilled and ordinary workers= zero + -36,000=
-36,000
- The net wage rate variance for skilled and ordinary
workers is ………….
A. zero
B. + 45,000 EGP
C. -40,000 EGP
D. None of the above.

The net wage rate variance for ordinary workers= ( 20-20)*(6*1000) = zero
The net wage rate variance for skilled workers=( 40-50) *(4*1000)= -40,000
The net wage rate variance for skilled and ordinary workers= zero + -40,000 =
-40,000
- The Mixed wage rate variance for skilled and ordinary workers is
………….
A. -5000 EGP.
B. -3000 EGP.
C. -4000 EGP.
D. None of the above.

The mixed wage rate variance for ordinary workers= ( (6*1000)-(6.4*1000) )*(20-
20) = zero
The mixed wage rate variance for skilled workers=( (4*1000) –(3.6*1000) ) *(50-
40) = +4000
The mixed wage rate variance for skilled and ordinary workers= zero + 4000 =
+4000