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The budget that gets adjusted according to the level of activity the company achieves is known as a flexible budget. This budget gets adjusted according to the business鈥檚 cost variation.

Direct material variance analysis:

Cost variance:

$\begin{array}{c}\mathrm{Direct}\mathrm{material}\mathrm{cost}\mathrm{variance}=\left(\mathrm{Actual}\mathrm{cost}-\mathrm{Standard}\mathrm{cost}\right)脳\mathrm{Actual}\mathrm{quantity}\\ =\left(\mathrm{\$}8.30-\mathrm{\$}8.50\right)脳6,300\\ =\mathrm{\$}1,260\left(\mathrm{F}\right)\end{array}$

Efficiency variance:

$\begin{array}{c}\mathrm{Direct}\mathrm{material}\mathrm{efficiency}\mathrm{variance}=\left(\mathrm{Actual}\mathrm{quantity}-\mathrm{Standard}\mathrm{quantity}\right)脳\mathrm{Standard}\mathrm{cost}\\ =\left(6,300-\frac{6,150}{1,025}脳1,005\right)脳\mathrm{\$}8.50\\ =\left(6,300-6,030\right)脳8.50\\ =\mathrm{\$}2,295\left(\mathrm{U}\right)\end{array}$

Direct labor variance analysis:

Cost variance:

$\begin{array}{c}\mathrm{Direct}\mathrm{labor}\mathrm{cost}\mathrm{variance}=\left(\mathrm{Actual}\mathrm{rate}-\mathrm{Standard}\mathrm{rate}\right)脳\mathrm{Actual}\mathrm{hours}\\ =\left(\mathrm{\$}9.40-\mathrm{\$}9.20\right)脳9,850\\ =\mathrm{\$}1,970\left(\mathrm{U}\right)\end{array}$

Efficiency variance:

$\begin{array}{c}\mathrm{Direct}\mathrm{labor}\mathrm{efficiency}\mathrm{variance}=\left(\mathrm{Actual}\mathrm{hours}-\mathrm{Standard}\mathrm{hours}\right)脳\mathrm{Standard}\mathrm{rate}\\ =\left(9,850-\frac{10,250}{1,025}脳1,005\right)脳\mathrm{\$}9.20\\ =\left(9,850-10,050\right)脳\mathrm{\$}9.20\\ =\mathrm{\$}1,840\left(\mathrm{F}\right)\end{array}$

Variable overhead cost variance:

role="math" localid="1656931900353" $\begin{array}{c}\mathrm{Variable}\mathrm{overhead}\mathrm{cost}\mathrm{variance}=\left(\mathrm{Actual}\mathrm{cost}-\mathrm{Standard}\mathrm{cost}\right)脳\mathrm{Actual}\mathrm{quantity}\\ =\left(\mathrm{\$}6.50-\mathrm{\$}5.10\right)脳6,300\\ =\mathrm{\$}2,520\left(\mathrm{U}\right)\end{array}$

Variable overhead efficiency variance:

$\begin{array}{c}\mathrm{Variable}\mathrm{overhead}\mathrm{efficiency}\mathrm{variance}=\left(\mathrm{Actual}\mathrm{quantity}-\mathrm{Standard}\mathrm{quantity}\right)脳\mathrm{Standard}\mathrm{cost}\\ =\left(6,300-\frac{6,150脳1,005}{1,025}\right)脳\mathrm{\$}5.10\\ =\left(6,300-6,030\right)脳5.10\\ =1377\left(\mathrm{U}\right)\end{array}$

Fixed overhead cost variance:

Fixed overhead volume variance:

1. Direct material cost variance: Direct material cost variance is positive reflecting that manager is able to control its direct material cost.
2. Direct material efficiency variance and variable overhead efficiency variance: Both of these variances are unfavorable reflecting that the manager is not able to control the usage of the direct material.
3. Direct labor cost variance: It is unfavorable reflecting that the business entity is not able to maintain the labor cost within the standard limits.
4. Direct labor efficiency variance: It is favorable reflecting that the business entity is able to maintain the labor hours within the standard limit.
5. Variable overhead cost variance: It is unfavorable reflecting that the manager is not able to maintain the variable overhead of the business entity within the prescribed standards.
6. Fixed overhead cost variance: The manager is not able to control its fixed cost because the fixed overhead cost variance is unfavorable.
7. Fixed overhead volume variance: The fixed overhead volume variance is unfavorable reflecting that the business entity was not able to produce the goods according to the budgeted units.

The standard cost system will help the manager in the following ways:

1. It helps in the preparation of the master budget.
2. It helps in the establishment of the standard performance level.
3. It helps in determining the sales price.
4. It helps in defining the standards that will be used to measure the performance.