Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 61

Flexible Budgets and Direct Labor Variances Duo Co. has the following processing standards for its clerical employees:

Number of hours per 1,000 papers processed	150
Normal number of papers processed per year	1,500,000
Wage rate per 1,000 papers	$1,200
Total standard variable cost (including labor)
of processing 1,500,000 papers	$2,700,000
Fixed costs per year	$ 150,000

The following information pertains to the 1,200,000 papers processed during the year:

Total cost	$1,995,000
Labor cost	$1,710,000
Labor hours	190,000

Required Prepare an Excel spreadsheet that can be used to compute for Duo Co. the following:

1. Expected total cost for the year to process 1,200,000 papers, assuming standard performance.

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2. Labor rate variance for the year.

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3. Labor efficiency variance for the year.

Step 1 of 8

Variance and budget v/s variance:

In costing, variance is a difference occurred between planned, standard or budgeted cost and the actual cost incurred. These variances can be for both cost and revenue. These variances can be favourable or unfavourable.