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Published by Siddharth Mishra

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Published by: Siddharth Mishra on Dec 21, 2010
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or variance.Standard Costing is a method of cost control that includes a measure of actual performance and a measure of the difference. between standard and actual performance .

Using Variance Analysis to Control Costs Step 1 Compute variance Is the variance significant? Yes Step 2 No No corrective action needed Analyze variance to determine its cause Step 3 Select performance measures to correct the problem Step 4 Take corrective action .

Direct Labour Variances ‡ Total direct labor cost variance ± Difference between the standard direct labor cost for good units produced and actual direct labor costs ‡ Good units are the total units produced less units that are scrapped or need to be reworked .

20 per hour v 450 hours ! 4. each leather bag requires 2.50 per foot v (180 bags v 2.20 per hour Standard cost Standard rate v standard hours allowed ! Rs8. 450 direct labor hours were used to make 180 bags at an average pay rate of Rs9.Direct labour variance At Sreeleathers Company.50 per hour v 432 hours ! Rs3.140 Rs 468 (U) Actual cost > standard cost Total direct labor cost variance .672 Less actual cost Actual rate v actual hours ! Rs9.50 per hour. During August.4 hours per bag) ! Rs8.4 standard direct labor hours. and the standard direct labor rate is Rs 8.

Two parts of labour variance ‡ Direct labor rate variance ‡ Direct labor efficiency variance .

20) v 450 hours ! Rs315 ( ) Because the company paid more per hour for direct labor than it expected.50  Rs9.Direct labor rate variance ± Difference between the standard direct labor rate and the actual direct labor rate multiplied by the actual direct labor hours worked ± Also called the direct labor spending variance Direct abor Rate Variance ! (Standard Rate  ctual Rate) v ctual Hours ! (Rs8. the variance is unfavorable .

the variance is unfavorable (U) .Direct labor efficiency variance ± Difference between the standard direct labor hours allowed for good units produced and the actual direct labor hours worked multiplied by the standard direct labor rate ± Also called the direct labor quantity or usage variance irect Labor Efficiency ariance ! tandard Rate v ( tandard Hours Allowed  Actual Hours) ! Rs8.50 per hour v (432 hours  450 hours) ! Rs153 (U) Because the company used more direct labor hours than it expected.

When to take corrective measure .

50 per hour and the machine operator is paid Rs9.20 per hour ± Machine operator not as skilled as the assembly worker » Temporary situation so no corrective action taken ± Materials handling ‡ Parts delivered late on five occasions ± Will track delivery time and number of delays for next three months .Correcting Direct Labor Variances ± Employee time cards ‡ An assembly worker who had fallen ill was replaced with a machinery operator from another department ± Assembly worker is paid Rs8.

must be investigated since it is due to some system error. ‡ Systematic or non-random variations. ‡ Small Variation should be ignored. ‡ Investigation would be more useful if the variation can be avoided or controlled. . howsoever small.GUIDELINES on VARIATION ANALYSIS The following guidelines may be kept in mind while analyzing variations: ‡ Variations are natural due to time-lag between Estimating Standard Costs and Collection of Actual Costs. ‡ Cost of investigation and cost of not investigation may also be ascertained for a better decision.

lcv_prob.THANK YOU .xlsx .

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