Standard cost of production in Dagoreti Ltd. is as follows: Time 2 hours per unit Cost Sh.4 per hour Actual working in period: Production 7,000 units Hours taken in production 11,500 hours Due to Machinery break-down Idle time 500 hours 12,000 hours Actual cost @ Sh.5 per hour Required: Calculate labour variances
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Time 2 hours per unit
Cost Sh.4 per hour
Actual working in period:
Production 7,000 units
Hours taken in production 11,500 hours
Due to Machinery break-down Idle time 500 hours
12,000 hours
Actual cost @ Sh.5 per hour
Required: Calculate labour variances
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