Separate static-budget variance into volume and rate or efficiency drivers.
Warehouse labor budget was $80,000 for 10,000 orders at $8 per order. Actual volume was 11,900 orders. Actual labor cost was $138,000. Static variance should be split into volume variance and flexible-budget variance. The common trap is treating all overspend as poor cost control even when activity volume changed. Flexible-budget variance Static budget Original plan at planned activity. Flexible budget Planned unit cost multiplied by actual activity. Operating variance Actual cost compared with flexible budget. 10,000 planned orders x $8 planned labor per order = $80,000 This is the original budget before actual volume is known. 11,900 actual orders x…
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