Develop budgetary control systems comparing actual with planned expenditure

The below variance analysis shows that to produce 46 500 concrete blocks XYZ Company over spent AED 52 250 on labor cost or 7% overall. A further analysis by block type reveals that block type B, C and D have unfavorable variance while block A and E have favorable variance. Also notice there are two type of variances i.e., hours spent and hourly rate. Block type B and D have labor hour variances meaning the actual hours spent on these block types are more than budgeted. While block type C and E have unfavorable and favorable rate variances respectively. Meaning the rate at which hourly wages were budgeted are different than actual wages.  Accordingly two types of variances occur:

  1. Unfavorable: This is the variance that has negative impact on the profitability
  2. Favorable: This variance has positive impact on the profitability 

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