@MaLoTu yes part of the information that is given to us would be part of a flexible budget, but In order to find an efficiency variance, we are comparing actual results with the flexible budget.
I'm not sure exactly what you mean when you say “when we are trying to get the standard rate”
The standard rate is already given to us as $12 per DLH
I think taking the time to understand the components in the formula and why we are using them/how were are arriving at them, is equally as important as remembering the formula.
So if you have a question that asks for a price variance. What is it looking for? It wants to know of the total difference between your actual results and your flexible budget (your flexible budget variance), how much of that is due to price. (see below) So you know that you're going to have to take the difference between your budgeted price and your actual price times your actual output.
Actual units produced (actual price – budgeted price)
When you have an efficiency variance, you're trying to find how efficient or inefficient you were in making the product. How do you determine if you're efficient or not? By how much you're paying your workers? No. By how long it takes them to build a unit. So you know you're going to be taking the difference of how long it actually took them to build the 15,500 units, and how long it SHOULD have taken them to build 15,500 units. How do you know how long it should have taken them to build the 15,500 units? Well you budgeted them to take .4 hours to make one unit. So to make 15,500 units it should take them 15,500 x .4 hours right? So it should take them 6,200 hours to make 15,500 units.
The formatting on this forum sucks but i'll try anyway… (The numbers below are not from this problem just using as an example)
AQ = actual quantity. AP = actual price. BI/AQ = Budgeted input per actual quantity BP = budgeted price
Actual Results…………………………………………………………………Flexible Budget
AQ x AP…………………………..(AQ x BP)……………………………….BI/AQ x BP
(4,500hrs x 29)……………(4,500 hrs x $30)…………………(.4hr/unit x 10,000 units x 30/hr)
= $130,500………………………=$135,000……………………………….=$120,000
|____________________________________________________|
……………………………………………..^
…………………………………………$10,500
……………………………..Flexible Budget Variance
|__________________________|__________________________|
……………………^………………………………………………..^
………………….$4,500F………………………………..$15,000U
……………price variance…………………………..efficiency variance
…….AQ (AP-BP)……………………………………….BP(AQ-BI/AQ)
So in the above example. Of the $10,500 flexible budget variance, we can attribute $4,500 of that variance due to a favorable difference in the actual price and the budgeted price. And we can attribute $15,000 of it due to being inefficient with our labor
I hope I didn't confuse you more… -_-
AUD - 93
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AUD 93 Jan 16
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