Calculation and Analysis of Material and Labor Variances in Finance

This finance management assignment delves into the core concepts of variance analysis, a critical tool for cost control and performance evaluation. The assignment presents a detailed analysis of material and labor variances. It includes calculations for material price and usage variances for flour and cocoa, along with an examination of the interrelationship between them. The assignment also covers the calculation of labor rate and efficiency variances, and the interrelationship between labor variances. Furthermore, it explores the causes of labor idle time variances, providing a comprehensive understanding of the factors that can impact production costs and efficiency. References to relevant literature are also included. This assignment will help students understand the practical application of variance analysis in a business setting.

FINANCE MANAGEMENT

Table of Contents
QUESTION.....................................................................................................................................3
(a) Calculation of material price and usage variance for Flour...................................................3
(b) Calculation of material price and usage variance for Cocoa.................................................3
(c) Interrelationship between Material Variance.........................................................................3
(d) Calculation of labour rate and efficiency variance................................................................3
(e) Interrelationship between labour variance.............................................................................4
(f) Causes for labour idle time variances.....................................................................................4
REFERENCES................................................................................................................................1

QUESTION
(a) Calculation of material price and usage variance for Flour
Formula of Material Price Variance = Actual Quantity* (Standard Price – Actual Price*)
Flour price variance = 17910Kg* (€15 - €15.16) = (€2865.6) Adverse
*Actual Price = €271,450/ 17910Kg = €15.16 per kg
Formula of Material Usage Variance = Standard Price* (Standard Quantity for actual output* –
Actual Quantity)
Flour material variance = €15* (18000Kg – 17910Kg) = 90Kg Favourable
*Standard Quantity = 900 cake* 20kg =18000kg
(b) Calculation of material price and usage variance for Cocoa
Formula of Material Price Variance = Actual Quantity* (Standard Price – Actual Price*)
Cocoa price variance = 4635Kg* (€20 - €16.69) = €15341.85 Favourable
*Actual Price = €77335/ 4635Kg = €16.69 per kg
Formula of Material Usage Variance = Standard Price* (Standard Quantity for actual output*-
Actual Quantity)
Cocoa material variance = €20* (4500Kg – 4635Kg) = (135Kg) Adverse
*Standard Quantity = 900 cake* 5kg =4500kg
(c) Interrelationship between Material Variance
In the above question, the variance arises in the direct material because of the change in
price and usage both. The adverse flour price variance indicate that the actual price is more than
standard price while the favourable usage of flours indicate that the standard quantity usage is
less than the actual (Ayres and et.al., 2018). And the favourable cocoa price variance state that
the actual price is less than standard and adverse cocoa material usage indicate actual material
usage is high than standard (Du, Huang and Zhou, 2020). So, the interrelationship between the
above state than the overall material variance depends upon various factors rather than one.
(d) Calculation of labour rate and efficiency variance
Formula of Labour Rate Variance = Actual Hours* (Standard Rate – Actual Rate*)
LRV = 5310hours* (€7 – €7.5) = (€2655) Adverse

*Actual Rate = €39825/ 5310hours
Formula of Labour Efficiency Variance = Standard Rate* (Standard hours for actual output* –
Actual Hours)
LEV = €7* (5400hours – 5310hours) = 90hours Favourable
*Standard hours = 900cake* 6hours = 5400hours
(e) Interrelationship between labour variance
The interrelationship between the labour variance indicates that if the direct labour is not
efficient in their work while producing the goods than it will cause high actual labour rate than
standard and also high actual labour hours than standard. This further cause the unfavourable
labour rate and efficiency variance. And that inefficient will cause the extra variable
manufacturing overheads to the company.
(f) Causes for labour idle time variances
There are basically many reasons which causes the direct labour idle time variance and that
includes the following:
 This difference in the idle time also occurs when the machines get break down where the
labour do their work.
 It may also arise when the power gets cut in the premises which means power failure in
simple term.
 Sometime the labour is unable to perform their task because of the delay in instructions
from the top authority and superiors.
 They cause of idle time variance also includes waiting for tools or raw material in order
to start the production (Perrone and et.al., 2020).
 There are also various economic causes and that is seasonal, cyclic and industrial nature
changes.
 The administration is also one of the big causes of this idle time variance.

REFERENCES
Books and journals
Ayres, A. and et.al., 2018. Variance analysis in 3-D integration: A statistically unified model
with distance correlations. IEEE Transactions on Electron Devices. 66(1). pp.633-640.
Du, G., Huang, L. and Zhou, M., 2020. Variance Analysis and Handling of Clinical Pathway: An
Overview of the State of Knowledge. IEEE Access. 8. pp.158208-158223.
Perrone, K. H. and et.al., 2020. Use of sensors to quantify procedural idle time: Validity
evidence for a new mastery metric. Surgery. 167(4). pp.693-698.
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