Using the following performance data, calculate the volume adjusted labor rate variance and volume adjusted efficiency variance. The department is considered 40% variable.
Actual Budget
Salaires $454,300 $401,250
Payroll Hours 22,000 15,000
Service Volume 8,250 5,500
Expert Answer
Actual Volume 8,250
Budgeted volume 5,500
Variable expense factor 40%
Volume change factor 50%
Volume adjustment factor 20.0%
Actual Budget Variance
Salaires $454,300 $401,250 ($53,050)
Volume adjustment $80,250 $80,250
Volume adjusted amounts $454,300 $481,500 $27,200
Payroll Hours 22,000 15,000 (7,000)
Volume adjustment 3,000 3,000
Volume adjusted hours 22,000 18,000 (4,000)
Labor rate $20.65 $26.75
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Volume adjusted efficiency variance = (Adjusted budgeted hours – Actual hours) x Actual rate
= (-4000) x $20.65 = ($82,600) U
Volume adjusted rate variance = (Budgeted labor rate – Actual rate) x volume adjusted budgeted hours
= ($26.75 – $20.65) x 18,000 = $109,800 F