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Budgeting and Forecasting: Car Production Example

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In the production of a car, if direct materials are $2,000, direct labor $3,000, and factory overhead $1,500, what are my total manufacturing costs?

If I am computing a cost variance (variance means difference) against some target or base level, (actual variance to budget or actual variance to prior year, let's say) what might be driving that variance across the categories noted above?

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Solution Summary

Discusses total manufacturing costs, and what is driving the variance across the categories.

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Answer:

Direct Material $2000
Direct Labor $3000
Factory Overhead $1500
Total Manufacturing Costs $6500

In case of variance between the budgeted and actual results, the factors that drive the variance is different for ...

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