# View A Labor Budget To Actual Report

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How would this unforeseen pay cut affect United’s direct labor rate variance? The direct labor rate variance would likely be favorable, perhaps totaling close to \$620,000,000, depending on how much of these savings management anticipated when the budget was first established. The Labor Budget to Actual Report compares the hours recorded in the Timesheets tool to the imported Budgeted Hours at a cost code level. It also summarizes the % of hours used, budgeted hours, actual job-to-date hours, and remaining hours for each project cost code. Although various complex computations can be made for overhead variances, we use a simple approach in this text. In this approach, known as the two-variance approach to variable overhead variances, we calculate only two variances—a variable overhead spending variance and a variable overhead efficiency variance.

## Import Budgeted Hours

They can view the comparison of ‘Timesheet Hours’ to the budgeted labor hours in a Labor Budget to Actual Report. The primary value of this report is to see the percentage of hours used for each cost code and includes calculated values like remaining and job to date hours. Add the cost of materials to your direct labor costs to find out how much each unit actually costs you to produce.This allows management to anticipate hiring needs, as well as when to schedule overtime, and when layoffs are likely. The budget provides information at an aggregate level, and so is not typically used for specific hiring and layoff requirements. Jerry , Tom , Lynn , and Michelle were at the meeting described at the opening of this chapter.

## How To Calculate The Direct Labor Budget For The Upcoming Fiscal Year

Let’s assume that the budgeted manufacturing overhead for the upcoming year is expected to be \$1,000,000 in order to produce the expected 100,000 identical units of product. The standard cost of manufacturing overhead per unit of product is \$10 (\$1,000,000 divided by 100,000 units). When the products are not identical, the \$1,000,000 of manufacturing overhead might be divided by the expected number of machine hours required to manufacture the units of product.

## What does flexing the budget mean?

Accounting professionals should be able to ‘flex’ budgets. This process means changing a budget to allow for different sales levels and allows more realistic variance analysis at the end of the financial period in question.In a standard cost system, accountants apply the manufacturing overhead to the goods produced using a standard overhead rate. They set the rate prior to the start of the period by dividing the budgeted manufacturing overhead cost by a standard level of output or activity.

## What Is The Direct Labor Budget?

This will show you how much money you need to spend on labor each month of the coming fiscal year. These show that manufacturing overhead has been overapplied to production by the \$ 2,000 (\$110,000 applied OH – \$108,000 actual OH).

You’ll see the Future Scheduled Hours for each project as a whole, and when a project is expanded, you’ll see the number of hours scheduled for each person assigned to the project. As mentioned earlier, the cause of one variance might influence another variance. For example, many of the explanations shown in Figure 10.7 “Possible Causes of Direct Labor Variances for Jerry’s Ice Cream” might also apply to the favorable materials quantity variance. Add all of the wages you pay per hour, then divide by the number of employees. For example, you might find that your employees earn on average \$12 per hour.That is, the variable overhead cost per unit stays constant (\$ 2 per machine-hour) regardless of the number of units expected to be produced, and only the fixed overhead cost per unit changes. Since fixed overhead does not change per unit, we will separate the fixed and variable overhead for variance analysis. Managers use a flexible budget to isolate overhead variances and to set the standard overhead rate. Flexible budgets show the budgeted amount of manufacturing overhead for various levels of output. The direct labor budget is used to calculate the number of labor hours that will be needed to produce the units itemized in the production budget. A more complex direct labor budget will calculate not only the total number of hours needed, but will also break down this information by labor category. The direct labor budget is useful for anticipating the number of employees who will be needed to staff the manufacturing area throughout the budget period.

## Direct Labor Efficiency Variance Calculation

Then multiply the total number of direct labor hours by the fully burdened direct labor cost per hour to arrive at the total cost of direct labor. As with direct materials variances, all positive variances are unfavorable, and all negative variances are favorable. The labor rate variance calculation presented previously shows the actual rate paid for labor was \$15 per hour and the standard rate was \$13.Note that both approaches—the direct labor efficiency variance calculation and the alternative calculation—yield the same result. Note that both approaches—direct labor rate variance calculation and the alternative calculation—yield the same result. Is the difference between the actual number of direct labor hours worked and budgeted direct labor hours that should have been worked based on the standards. The difference between the actual number of direct labor hours worked and budgeted direct labor hours that should have been worked based on the standards. The budget contains two types of labor that are compiled separately, since they have different costs. There are 0.1 machine hours of time required for each product manufactured, which costs the company \$25 per hour. Additionally, there are 0.05 other hours of time required for each product manufactured, which costs the company \$15 per hour.

• It is defined as the difference between the actual number of direct labor hours worked and budgeted direct labor hours that should have been worked based on the standards.
• The variable OH efficiency variance shows whether plant assets produced more or fewer units than expected.
• This will show you how much money you need to spend on labor each month of the coming fiscal year.
• To import budgeted hours to set up a Labor Budget to Actual Report that shows a comparison of labor hours to budgeted hours for each cost code in the project.

The labor efficiency variance calculation presented previously shows that 18,900 in actual hours worked is lower than the 21,000 budgeted hours. Clearly, this is favorable since the actual hours worked was lower than the expected hours. Note that the difference in rates is due solely to dividing fixed overhead by a different number of machine-hours.As shown in the following, the labor rate variance is \$ favorable, and the labor efficiency variance is \$234,000 unfavorable. The 21,000 standard hours are the hours allowed given actual production. For Jerry’s Ice Cream, the standard allows for 0.10 labor hours per unit of production. Thus the 21,000 standard hours is 0.10 hours per unit × 210,000 units produced. This feature allows users to upload budgeted labor hours from outside the Budget tool.