 Hello in this lecture we're going to talk about variance analysis with regards to direct labor talking about the rate variance and the efficiency variance. At the end of this we will be able to explain the use of variance analysis for direct labor, calculate rate variance and efficiency variance for direct labor. So when we think about these variance analysis we have to figure that we are going to be talking about a flexible budget meaning that if we had planned the budget to be at 70% capacity production of 42,000 and 210,000 for example we would need to change that if we had run the process and see that we actually produce at 90% capacity for example and 54,000 units and the actual labor being 265,000 hours. So if that was the case and that's going to be the case all the time we're going to have some different level of production than we had projected. So we will have the fixed budget when we when we plan out but when something actually happens at the end we will need to make the budget flexible if we want to get some more detail in terms of how we did at that capacity level. For example if we thought that we were going to be at 70% capacity and we budgeted our labor costs based on that and then we actually produced at 90% capacity meaning we produced budgeted to produce 42,000 units and we actually produced 54,000 units then the cost for direct labor is clearly going to be higher in that case and that's not going to give us too good of information because if we go to the to the department and the manufacturing department say hey you're over budget on how much you spent on labor that's going to be not good information because of course it's going to be over budget we produce more than we thought and that's not necessarily a bad thing. So we need to get some more information if we really want to measure how we're doing in regards to labor then the fixed budget's not going to do it we're going to at least need to go to a flexible budget and then even take it a step further than that so we're going to then look at the cost for direct labor with regards to the production level in this case 90 capacity and 270,000 hours because that's we produced at 90 capacity.