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Textile Costing · Lecture 14
Budgeting in Textiles — Price & Efficiency Variances
Splitting Webb’s flexible-budget variances for materials and labour into a price part and an efficiency part.
Price varianceEfficiency varianceStandards
Standards and actuals
Each jacket should use 2 yd of cloth at Rs 30, 0.8 h of manufacturing labour at Rs 20 and 0.25 h of marketing labour at Rs 24. April’s actuals: 22,200 yd of cloth costing 688,200; 9,000 manufacturing hours costing 198,000; 2,304 marketing hours costing 57,600, for 10,000 jackets.
Price variance = (actual price − budgeted price) × actual input
Efficiency variance = (actual input − budgeted input allowed for actual output) × budgeted price
Price + efficiency = flexible-budget variance
Efficiency variance = (actual input − budgeted input allowed for actual output) × budgeted price
Price + efficiency = flexible-budget variance
| A | B | C | D | E | |
|---|---|---|---|---|---|
| 1 | Standards | Input per unit | Cost per input | Std cost / unit | |
| 2 | Direct materials (yd) | 60.00 | |||
| 3 | Direct manufacturing labour (h) | 16.00 | |||
| 4 | Direct marketing labour (h) | 6.00 | |||
| 5 | Actual units produced and sold | ||||
| 6 | Actual results | Total cost | Input used | Actual price | |
| 7 | Direct materials | 31.00 | |||
| 8 | Direct manufacturing labour | 22.00 | |||
| 9 | Direct marketing labour | 25.00 | |||
| 10 | Variances (U = positive) | Flexible budget | Flexible-budget var. | Price variance | Efficiency variance |
| 11 | Direct materials | 600,000 | 88,200 | 22,200 | 66,000 |
| 12 | Direct manufacturing labour | 160,000 | 38,000 | 18,000 | 20,000 |
| 13 | Direct marketing labour | 60,000 | (2,400) | 2,304 | (4,704) |
blue = input (edit me)grey = formula (click to see it)
Materials: 88,200 U = 22,200 U price (paid Rs 31 instead of 30) + 66,000 U efficiency (used 2,220 yd more than the 20,000 allowed). Marketing labour shows the opposite pattern — paid more per hour but used fewer hours, so the net variance is 2,400 F. In a spinning mill the same split separates “cotton got dearer” from “we wasted more cotton”.