Accounting for Managers: Interpreting accounting information for decision-making

BUDGETARY CONTROL 235

Table 15.11 Labour variance

Std cost

per unit

Original

budget

Std cost

per unit

Flexed

budget

Usage

qty

Act cost

per unit

Actual Variance

Skilled 6 @ £15 900,000 6 @ £15 810,000 55,000 £15.25 838,750 −28,750
Semi-
skilled

3 @ £7.50 225,000 3 @ £7.50 202,500 26,000 £7.50 195,000 7,500

1,125,000 1,012,500 1,033,750 −21,250

Table 15.12 Labour efficiency variance

Skilled

Standard quantity 9 , 000 × 6

Standard price @ £15.00 810,000

Actual quantity 55,000

Standard price @ £15.00 825,000

Adverse variance −15,000

Unskilled

Standard quantity 9 , 000 × 3

Standard price @ £7.50 202,500

Actual quantity 26,000

Standard price @ £7.50 195,000

Favourable variance 7,500

Total efficiency variance – adverse −7,500

žunplanned overtime payments;
ža negotiated wage increase that has not been included in the labour routing.

The total labour variance is an unfavourable £21,250. This is a combination of
efficiency and rate variances, but it is all in relation to skilled labour. The total
labour variance is shown in Table 15.14.
Variable production costs also need to be analysed.

Variable overhead variance

The overhead variance is an adverse variation of £13,250, as shown in Table 15.15.
There are two types of overhead variance, the efficiency variance and the
spending variance.
The overhead efficiency variance is £5,000 adverse, as shown in Table 15.16.
The variance has occurred because an extra 1,000 hours have been worked. The
efficiency variance is typically related to production hours and often follows from
variances in labour (see Chapter 11). The reason may be that as more hours have