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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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    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 ...

    Solution Summary

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