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Show What You Know: Cost Variance Analysis

Show What You Know: Cost Variance Analysis

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XYZ Corp is struggling with their labor budget. They have always been within $5\%$ of budget, but this year their direct labor budget was $$30,000$ and actual labor cost was $$36,000.$ This is $20\%$ over budget! Is this significant and what might XYZ want to do about this variance?

This is not significant and they will need to adjust their budget to their current level of wages.

This is significant and they may want to examine machinery breakdown issues, employee turnover, increases in wages due to a competitive labor market or other reasons for the increase.

This is significant and they should do layoffs to get their labor costs back in line with budget.