Labour Variance | Rate | Efficiency | Idle Time | Mix | Yield | Cost | Problem & Solution
Arjun EP
Materials
In a manufacturing company, materials and labour are the most important factors for production.
Raw materials are converted into semi-finished goods and finished goods with the help of labour.
While manufacturing the goods, all the input goods are NOT output or yield.
There are normal and abnormal losses.
When the company cannot stop or control the loss of goods on a natural basis; it is called normal loss.
Normal losses are weight loss, shrinkage, evaporation, rust etc.
When the company can stop or control loss but could not control, it is known as abnormal loss.
Abnormal loss is due to carelessness, fatigue, rough handling, abnormal or bad working condition, lack of proper knowledge, low-quality raw materials, machine break down, accidents etc.
We will study the following materials variances in this topic:
Materials cost variance
Materials price variance
Materials usage variance
Materials mix variance
Materials yield variance
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Labour
Every manufacturing company and business organization needs human being resources.
These human beings may be the resource of administrators and labour.
Without labour, a manufacturing company cannot complete its production.
It is saying, “Talented, calibre and skilled manpower is the other assets of the business organization.”
There are three types of labour.
They are unskilled labour, semi-skilled labour and skilled labour.
Unskilled labour gets fewer wages but skilled labour gets the highest wages.
The payment made to the labour in exchange for its service is called labour cost.
It is a major part of the total cost of production.
Labour cost is also commonly called wages.
Labour cost or wages is one of the major elements of cost.
Labour cost represents the expense incurred on both direct and indirect labour.
Unproductive time is known as idle time.
It may be due to normal or abnormal reasons.
In idle time, workers have been paid without any production activity.
To identify the reasons for the idle time in the factory, an idle time card is maintained.
We will study the following labour variances in this topic:
Labour rate variance
Labour efficiency variance
Labour idle time variance
Labour mix variance
Labour yield variance
Labour cost variance
Direct Labour Variance | Labour Variance
Every production company needs labour for production.
By using the labour, the company produces goods.
While producing the goods, there may be variances.
A labour variance arises when the actual cost varies from expected budgeted or standard amount.
This varies either better or worse.
The difference between standard cost of labour and actual cost of labour is labour/wage variance.
Direct labour cost variance is the difference between the standard cost for actual production and the actual cost in production.
There are two kinds of labour variances.
They are labour rate variance and labour efficiency variance.
Labour rate variance is the difference between the standard cost and the actual cost paid for the actual number of hours.
Labour efficiency variance is the difference between the standard labour hours.
The principle of labour cost variance is similar to materials cost variance.
Purchase of materials, usage of materials and usage of labour are connected with each other.
Before finding out labour variances, the following point should be found out (requirement for labour variance):
|
AR |
= Actual wage rate per period (hour, day, week, month) |
|
AT or AQ |
= Actual time taken or actual quantity used for production |
|
SR |
= Standard wage rate per period (hour, day, week, month) |
|
ST or SQ |
= Standard time or standard quantity used for production |
|
SY or SO |
= Standard yield or output |
|
AY or AO |
= Actual yield or output |
|
RSY |
= Revised standard yield |
|
IT |
= Idle time |
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AGT |
= Actual gang time |
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SGT |
= Standard gang time |
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SR1 |
= standard rate per unit of actual mix |
|
SR2 |
= standard rate per unit of standard mix |
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SR3 |
= standard rate |
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Types of labour variance |
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Labour Rate Variance (LRV) |
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Labour Efficiency Variance (LEV) |
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Labour Idle Time Variance (LITV) |
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Labour Mix Variance (LMV) |
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Labour Yield Variance (LYV) |
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Labour Cost Variance (LCV) |
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(1) Labour cost variance, LCV
The difference between standard direct labour cost for actual activity and direct labour cost paid is known as direct labour cost variance.
|
LCV |
= (Standard time × Standard rate) – (Actual time × Actual rate) |
|
Or |
= (ST × SR) – (AT × AR) |
(2) Labour rate variance, LRV
The difference between standard wage rates fixed and actual wage paid as known labour rate variance.
|
LRV |
= Actual time × (Standard rate – Actual rate) |
|
Or |
= AT × (SR – AR) |
(3) Labour efficiency variance, LEV
The difference between labour hours specified for the activity achieved and actual labour hour expended as known labour efficiency variance.
|
LEV |
= Standard rate × (Standard time – Actual time) |
|
Or |
= SR × (ST – AT) |
Three (3) variances without mix and yield variances
|
Computation: |
Variances: |
by table |
by formula |
|
L1 = AT × AR |
Labour Rate Variance (LVR) |
= L1 – L2 |
= AT (SR– AR) |
|
L2 = AT × SR |
Labour Efficiency Variance (LEV) |
= L2 – L3 |
= SR (ST– AT) |
|
L3 = ST × SR |
Labour Cost Variance (LCV) |
= L1 – L3 |
= (ST × SR) – (AT × AR) |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2A
The following data related to labour are given below by HP Company (P) Ltd:
|
Standard labour mix |
Actual labour mix |
||||
|
Labour |
Hours/No. |
Rate per hour |
Labour |
Hours/No. |
Rate per hour |
|
Skilled |
200 |
$50 |
Skilled |
150 |
$60 |
Required: (1) Labour rate variance; (2) Labour efficiency variance; (3) Labour cost variance
[Answer: LRV = $(1,500) U; LEV = $2,500 F; LCV = $1,000 F]
SOLUTION:
By table method:
Given and working note:
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
|
No. (ST) |
Rate (SR) |
Amount |
No. (AT) |
Rate (AR) |
Amount |
SR × AT |
|
Skilled |
200 |
50 |
10,000 |
150 |
60 |
9,000 |
50 × 150 = 7,500 |
|
Total |
200 |
|
SR2 =10,000 |
150 |
|
9,000 |
SR1 = 7,500 |
Again,
L1 = AT × AR = 150 × 60 = $9,000
L2 = AT × SR = 150 × 50 = $7,500
L3 = ST × SR = 200 × 50 = $10,000
Now,
|
Labour Rate Variance (LRV) |
= L1 – L2 |
= 9,000 – 7,500 |
= $1,500 U |
|
Labour Efficiency Variance (LEV) |
= L2 – L3 |
= 7,500 – 10,000 |
= $(2,500) F |
|
Labour Cost Variance(LCV) |
= L1 – L3 |
= 9,000 – 10,000 |
= $(1,000) F |
By formula method:
Labour rate variance (LRV)
= Actual time × (Standard rate – Actual rate)
= AT × (SR – AR)
= 150 (50 – 60)
= 150 × – 10
= ($1,500) U
Labour Efficiency Variance (LEV)
= Standard rate × (Standard time – Actual time)
= SR × (ST – AT)
= 50 × (200 – 150)
= 50 × 50
= $2,500 F
Labour cost variance (LCV)
= (Standard time × Standard rate) – (Actual time × Actual rate)
= (ST × SR) – (AT × AR)
= (200 × 50) – (150 × 60)
= 10,000 – 1,000
= $1,000 F
Keep in Mind (KIM)
|
Formula method |
Table method |
|
Positive result or answer means favorable (F) Negative result or answer means un-favourable (U) or adverse (A) |
Positive result or answer means unfavourable (U) or adverse (A) Negative result or answer means favourable (F) |
(4) Labour idle time variance, LITV
Labour idle time arises is due to abnormal wastage of time like strike, lock out, power failure, machinery break down etc.
Idle time variance is always adverse (unfavorable).
It is needed investigation for its causes.
It shows in-efficiency of workers although they are not responsible for this.
|
LITV |
= Idle time × Standard rate |
|
Or |
= IT × SR |
Four (4) variances without mix and yield variances
|
Computation: |
Variances: |
by table |
by formula |
|
L1 = AT × AR |
Labour Rate Variance (LRV) |
= L1 – L2 |
= AT × (SR– AR) |
|
L2 = AT × SR |
Labour Ideal Time Variance (LITV) |
= L2 – L3 |
= SR × IT |
|
L3 = (AT – IT) SR |
Labour Efficiency Variance (LEV) |
= L3 – L4 |
= SR × (ST– AT) |
|
L4 = ST × SR |
Labour Cost Variance (LCV) |
= L1 – L4 |
= (ST × SR) – (AT × AR) |
Keep in Mind (KIM)
|
Labour idle time variance is always unfavourable either positive or negative answer |
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Accounting Equation |
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Journal Entries in Nepali |
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Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cashbook |
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Trial Balance and Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Analysis of Financial Statement |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2B
The following data related to labour are given below by ABC Manufacturing Company:
|
Standard labour mix |
Actual labour mix |
||||
|
Labour |
Hours/No. |
Rate per hour |
Labour |
Hours/No. |
Rate per hour |
|
Unskilled |
1,920 |
$24 |
Skilled |
2,000 |
$27 |
Additional information:
Due to power failed of machinery, 20% of actual hours were idle time.
Standard time was 40 hours in a week.
Required: (a) Labour Rate Variance (LRV); (b) Labour Ideal Time Variance (LITV); (c) Labour Efficiency Variance (LEV);
(d) Labour Cost Variance (LCV)
[Answer: LVR = $6,000 U; LITV = $9,600 U;
LEV = $7,680 F; LCV = $7,920 U]
SOLUTION:
By table method:
Given and working note:
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
|
SN |
SR |
Amount |
AN |
AR |
Amount |
SR × AT |
|
Unskilled |
1,920 |
24 |
46,080 |
2,000 |
27 |
54,000 |
24 × 2,000 = 48,000 |
|
Total |
1,920 |
|
SR2 = 46,080 |
2,000 |
|
ATR= 54,000 |
SR1 = 48,000 |
Others
Standard gang time (SGT) = 40* hours
Actual gang time (AGT) = 40* hours
Idle time [2,000@20%] = 400 hours
Actual yield or output (AY) [2,000 –400] = 1,600
Again,
|
L1 |
= AT × AR |
= 2,000 × 27 |
= $54,000 |
|
L2 |
= AT × SR |
= 2,000 × 24 |
= $48,000 |
|
L3 |
= (AT – IT) × SR |
= (2,000 – 400) × 24 |
= $38,400 |
|
L4 |
= ST × SR |
= 1,920 × 24 |
= $46,080 |
Now,
|
Labour Rate Variance (LRV) |
= L1 – L2 |
= 54,000 – 48,000 |
= 6,000 U |
|
Labour Idle Time Variance (LITV) |
= L2 – L3 |
= 48,000 – 38,400 |
= 9,600 U |
|
Labour Efficiency Variance (LEV) |
= L3 – L4 |
= 38,400 – 46,080 |
= (7,680) F |
|
Labour Cost Variance (LCV) |
= L1 – L4 |
= 54,000 – 46,080 |
= 7,920 U |
By formula method:
Labour rate variance (LRV)
= Actual time × (Standard rate – Actual rate)
= AT × (SR – AR)
= 2,000 × (24 – 27)
= 2,000 × – 3
= $(6,000) U
Labour Idle Time Variance (LITV)
Idle time = 2,000 hours @ 20% = 400 hours
= Idle time × Standard rate
= IT × SR
= 400 hours × $24
= $9,600 U
Labour Efficiency Variance (LEV)
= Standard rate × (Standard time – Actual time)
= SR × (ST – AT)
= 24 × (1,920 – 1,600)
= 24 × 320
= $7,680 F
Labour cost variance (LCV)
= (Standard time × Standard rate) – (Actual time × Actual rate)
= (ST × SR) – (AT × AR)
= (1,920 × 24) – (2,000 × 27)
= 46,080 – 54,000
= $(7,920) U
Keep in Mind (KIM)
|
Idle time variance always unfavourable or adverse for factory. |
|
In efficiency variance, actual time (AT) is taken after deducting idle time. |
(5) Labour mix variance LMV | Gang composition variance, GCV
The difference between standard labour grade and actual labour grade are known as labour mix variance.
There may be difference types of labour in the company.
They are unskilled labour, semi-skilled labour, skilled labour and highly skilled labour etc.
Their mix in the work is known gang composition, labour mix variance or gang composition variance.
There are different rules for labour mix variances.
When standard number of labour and actual number of labour is equal:
LMV = Standard rate × (Revised standard time – Actual time)
Where:
Revised standard time = Standard time × (Actual yield ÷ Standard yield)
When standard number of labour and actual number of labour is not equal:
|
LITV |
= Idle time × Standard rate |
|
|
= IT × SR |
|
|
Or |
|
LMV |
[(Actual mix ÷ Standard mix) × Standard rate of standard mix] – (Standard rate of actual mix) |
|
|
[(ΣAT ÷ ΣST) × SR × ST] – (SR × AT) |
Where:
ST = standard time = Standard labour No. × Standard gang time
AT = actual time = Actual labour No. × Actual gang time
ΣAT = Total of AT = total of Actual labour No. × Actual gang time
ΣST = Total of ST = total of Standard labour No. × Standard gang time
(6) Labour yield variance, LYV | Labour output variance, LOV
The difference between actual output of the workers and standard output of the workers are known as labour yield variance.
It can be also found out by the difference between labour mix variance and labour idle time variance.
When actual mix (number) and standard mix (number) are not vary or difference: (when idle time is not given)
|
LYV |
= Standard cost per unit × (Actual yield or output – Standard yield for actual input) |
|
Or |
= SC × (AY – SY) |
Standard cost
= Standard No. × Standard rate × Standard gang time
= SN × SR × SGT
Standard cost per unit (SC)
= Total standard cost ÷ Standard yield = (SR2 × SGT) ÷ Standard yield = SR3
When actual mix (number) and standard mix (number) are vary or difference: (when idle time is given)
|
LYV |
= Standard cost per unit × (Actual yield or output – Revised standard yield or output) |
|
Or |
= SC × (AY – RSY) |
Revised actual time (RAT)
= Actual Number (Standard gang time – Idle time)
= AN (SGT – IT)
Revised standard yield
= SY × ΣRAT ÷ ΣST
Four (4) variances with mix variance but without ideal time
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Computation: |
Standard rate per unit (SR1, SR2) |
||
|
L1 = AGT × ATR |
SR1 = standard rate per unit of actual mix |
||
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L2 = AGT × SR1 |
SR2 = standard rate per unit of standard mix |
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L3 = AGT × SR2 |
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L4 = SGT or AY* × SR2 |
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Variances: |
by table |
by formula |
|
|
Labour Rate Variance (LRV) |
= L1 – L2 |
= AT × (SR – AR) |
|
|
Labour Mix Variance (LMV) |
= L2 – L3 |
= [ΣAT ÷ ΣST × SR × ST] – (SR × AT) |
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|
Labour Efficiency Variance (LEV) |
= L3 – L4 |
= SR (ST – AT) |
|
|
Labour Cost Variance(LCV) |
= L1 – L4 |
= (ST × SR) – (AT × AR) |
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|||
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If actual yield is not given in the question, standard gang time (SGT*) is taken |
|||
Keep in Mind (KIM)
|
If there are different between standard number of workers and actual number of workers, answer of mix variance and yield variance are different in table method and formula method. |
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Gang composition means labour mix variance. |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2C
The following data related to labour are given below MN Manufacturing Company:
Standard gang time was 30 hours but actual gang was 32 hours.
|
Standard labour mix |
Actual labour mix |
||||
|
Labour |
No. |
Rate per hour ($) |
Labour |
No. |
Rate per hour ($) |
|
Men |
100 |
60 |
Men |
80 |
65 |
|
Women |
40 |
36 |
Women |
50 |
40 |
|
Boys |
60 |
24 |
Boys |
70 |
20 |
Required: (a) Labour Rate Variance (LRV); (b) Labour Mix Variance (LMV); (c) Labour Efficiency Variance (LEV);
(d) Labour Cost Variance (LCV)
[Answer: LRV = 10,240 U; LMV = 19,200 F; LEV = 1,440 F; LCV = $8,800 U]
SOLUTION:
By table method
Given and working note:
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
|
SN |
SR |
Amount |
AN |
AR |
Amount |
SR × AN |
|
Men |
100 |
60 |
6,000 |
80 |
65 |
5,200 |
60 × 80 = 4,800 |
|
Women |
40 |
36 |
1,440 |
50 |
40 |
2,000 |
36 × 50 = 1,800 |
|
Boys |
60 |
24 |
1,440 |
70 |
20 |
1,400 |
24 × 70 = 1,680 |
|
Total |
SR2 = 8,880 |
|
ATR = 8,600 |
SR1 = 8,280 |
|||
Others
Standard gang time (SGT) = 30* hours
Standard output or yield =?
Actual gang time (AGT) = 32 hours
Actual output or yield =?
SR1 = standard rate in actual mix = $8,280
SR2 = standard rate in standard mix = $8,880
Again
|
L1 = AGT × ATR |
= 32 × 8,600 |
= $275,200 |
|
L2 = AGT × SR1 |
= 32 × 8,280 |
= $264,960 |
|
L3 = AGT × SR2 |
= 32 × 8,880 |
= $284,160 |
|
L4 = AY* × SR2 or [SGT × SR2] |
= 30 × 8,880 |
= $266,400 |
Keep in Mind (KIM)
|
If actual yield (AY) is not given, standard gang time (SGT) is taken. |
Now,
|
Labour Rate Variance (LRV) |
= L1 – L2 |
= 275,200 – 264,960 |
= 10,240 U |
|
Labour Mix Variance (LMV) |
= L2 – L3 |
= 264,960 – 284,160 |
= (19,200) F |
|
Labour Efficiency Variance (LEV) |
= L2 – L4 |
= 264,960 – 266,400 |
= (1,440) F |
|
Labour Cost Variance (LCV) |
= L1 – L4 |
= 275,200 – 266,400 |
= 8,800 U |
By formula method:
Given and working note:
|
Labour |
Standard |
Actual |
||||||
|
|
SN |
SR |
SGT |
ST = SN × SGT |
AN |
AR |
AGT |
AT = AN × AGT |
|
Men |
100 |
60 |
30 |
3,000 |
80 |
65 |
32 |
2,560 |
|
Women |
40 |
36 |
30 |
1,200 |
50 |
40 |
32 |
1,600 |
|
Boys |
60 |
24 |
30 |
1,800 |
70 |
20 |
32 |
2,240 |
|
Total |
200 |
|
ΣST = 6,000 |
200 |
|
ΣAT = 6,400 |
||
Labour rate variance (LRV)
|
LRV |
= AT (SR – AR) |
|
|
|
Men |
= 2,560 (60 – 65) |
= 2,560 × – 5 |
= (12,800) U |
|
Women |
= 1,600 (36 – 40) |
= 1,600 × – 4 |
= (6,400) U |
|
Boys |
= 2,240 (24 – 20) |
= 2,240 × 4 |
= 8,960 F |
|
Total |
|
|
= $10,240 U |
Labour mix variance (LMV)
|
LMV |
= [(ΣAT ÷ ΣST) × SR × ST] – (SR × AT) |
|
|
|
Men |
= [(6,400 ÷ 6,000) × 60 × 3,000] – (60 × 2,560) |
= 192,000 – 153,600 |
= 38,400 F |
|
Women |
= [(6,400 ÷ 6,000) × 36 × 1,200] – (36 × 1,600) |
= 46,080 – 57,600 |
= (11,520) U |
|
Boys |
= [(6,400 ÷ 6,000) × 24 × 1,800] – (24 × 2,240) |
= 46,080 – 53,760 |
= (7,680) U |
|
Total |
|
|
= $19,200 F |
Labour Efficiency Variance (LEV)
|
LEV |
= Standard rate × (Standard time – Actual time) |
||
|
|
= SR × (ST – AT) |
|
|
|
Men |
= 60 × (3,000 – 2,560) |
= 60 × 440 |
= 26,400 F |
|
Women |
= 36 × (1,200 – 1,600) |
= 36 × – 400 |
= (14,400) U |
|
Boys |
= 24 × (1,800 – 2,240) |
= 24 × – 440 |
= (10,560) U |
|
Total |
|
|
= $1,440 F |
Labour cost variance (LCV)
|
LCV |
= (Standard time × Standard rate) – (Actual time × Actual rate) |
||
|
|
= (ST × SR) – (AT × AR) |
|
|
|
Men |
= (3,000 × 60) – (2,560 × 65) |
= 180,000 – 166,400 |
= 13,600 F |
|
Women |
= (1,200 × 36) – (1,600 × 40) |
= 43,200 – 64,000 |
= (20,800) U |
|
Boys |
= (1,800 × 24) – (2,240 × 20) |
= 43,200 – 44,800 |
= (1,600) U |
|
Total |
|
|
= $(8,800) U |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2D
The following data related to labour are given by ABC Small industries:
|
Labour |
Standard labour mix |
Actual labour mix |
|||
|
|
No. |
Rate per hour ($) |
Labour |
No. |
Rate per hour ($) |
|
Grade A |
12 |
22.50 |
Grade A |
15 |
20.00 |
|
Grade B |
8 |
17.50 |
Grade B |
6 |
18.75 |
|
Grade C |
4 |
12.50 |
Grade C |
5 |
10.00 |
Additional information:
In a normal working week of 48 hours, the gang expected to produce 1,200 units. In same working hours, actual output produced 1,000 units due to abnormal idle time of 8 hours.
Required: (a) Labour Rate Variance (LRV); (b) Labour Idle Time Variance (LITV); (c) Labour Mix Variance (LMV);
(d) Labour Yield Variance (LYV); (e) Labour Efficiency Variance (LEV); (f) Labour Cost Variance (LCV)
[Answer: LRV = (2,040) F; LITV = 4,040 U; LMV = (1,800) F;
LYV = Nil; LEV = 5,840 F; LCV = 3,800 U]
SOLUTION:
By table method
Given and working note:
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
|
SN |
SR |
Amount |
AN |
AR |
Amount |
SR × AN |
|
Grade A |
12 |
22.50 |
270 |
15 |
20.00 |
300.00 |
22.50 × 15 = 337.50 |
|
Grade B |
8 |
17.50 |
140 |
6 |
18.75 |
112.50 |
17.50 × 6 = 105.00 |
|
Grade C |
4 |
12.50 |
50 |
5 |
10.00 |
50.00 |
12.50 × 5 = 62.50 |
|
Total |
|
|
SR2 = 460 |
|
|
ATR = 462.5 |
SR1 = 505 |
Others
Standard gang time (SGT) = 48 *hours
Standard output per gang?
Standard yield (SY) (given) = 1,200 units
Actual gang time (AGT) = 48* hours
Idle time = 8 hours
Actual yield (AY) (given) = 1,000 units
Note: lack of information, standard gang hours and actual gang hours is same.
SR1 = standard rate in actual mix = $505
SR2 = standard rate in standard mix = $460
SR3 = standard rate in standard output = STG × SR2 ÷ Standard yield = 48 × 460 ÷ 1,200 = $18.4
Again
|
L1 = AGT × ATR |
= 48 × 462.5 |
= $22,200 |
|
L2 = AGT × SR1 |
= 48 × 505 |
= $24,240 |
|
L3 = (AGT – IT) × SR1 |
= (48 – 8) × 505 |
= $20,200 |
|
L4 = (AGT – IT) × SR2 |
= (48 – 8) × 460 |
= $18,400 |
|
L4 = AY × SR3 |
= 1,000 × 18.4 |
= $18,400 |
Now,
|
Labour Rate Variance (LRV) |
= L1 – L2 |
= 22,200 – 24,240 |
= (2,040) F |
|
Labour Idle Time Variance (LITV) |
= L2 – L3 |
= 24,240 – 20,200 |
= 4,040 U |
|
Labour Mix Variance (LMV) |
= L3 – L4 |
= 20,200 – 18,400 |
= 1,800 U |
|
Labour Yield Variance (LYV) |
= L4 – L5 |
= 18,400 – 18,400 |
= Nil (No variance) |
|
Labour Efficiency Variance (LEV) |
= L2 – L5 |
= 24,240 – 18,400 |
= 5,840 U |
|
Labour Cost Variance (LCV) |
= L1 – L5 |
= 22,200 – 18,400 |
= 3,800 U |
By formula method:
Given and working note:
|
Labour |
Standard |
Actual |
||||||
|
|
SN |
SR |
SGT |
ST = SN × SGT |
AN |
AR |
AGT |
AT = AN × AGT |
|
Grade A |
12 |
22.50 |
48 |
576 |
15 |
20.00 |
48 |
720 |
|
Grade B |
8 |
17.50 |
48 |
384 |
6 |
18.75 |
48 |
288 |
|
Grade C |
4 |
12.50 |
48 |
192 |
5 |
10.00 |
48 |
240 |
|
Total |
24 |
|
|
ΣST = 1,152 |
26 |
|
|
ΣAT = 1,248 |
Given and working note:
|
Revised standard time |
= Standard time × Actual yield ÷ Standard yield |
|
|
Grade A |
= 576 × (1,000 ÷ 1,200) |
= 480 hours |
|
Grade B |
= 384 × (1,000 ÷ 1,200) |
= 320 hours |
|
Grade C |
= 192 × (1,000 ÷ 1,200) |
= 160 hours |
|
|
|
= 960 hours |
Labour rate variance (LRV)
|
LRV |
= AT (SR – AR) |
|
|
|
Grade A |
= 720 (22.50 – 20.00) |
= 720 × 2.50 |
= 1,800 F |
|
Grade B |
= 288 (17.50 – 18.75) |
= 288 × – 1.25 |
= (360) U |
|
Grade C |
= 240 (12.50 – 10.00) |
= 240 × 2.50 |
= 600 F |
|
Total |
|
|
= $2,040 F |
Labour Idle Time Variance (LITV)
Given and working note:
Idle time = AN × 8 hours
Grade A = 15 × 8 = 120 hours
Grade B = 6 × 8 = 48 hours
Grade C = 5 × 8 = 40 hours
|
LITV |
= SR × IT |
|
|
Grade A |
= 22.50 × 120 |
= 2,700 U |
|
Grade B |
= 17.50 × 48 |
= 840 U |
|
Grade C |
= 12.50 × 40 |
= 500 U |
|
Total |
|
= $4,040 U |
Labour mix variance (LMV)
|
LMV |
= ΣAT ÷ ΣST × SR × ST – (SR × AT) |
|
|
|
A |
= [1,248 ÷ 1,152 × (22.50 × 576)] – (22.50 × 720) |
= 14,040 – 16,200 |
= (2,160) U |
|
B |
= [1,248 ÷ 1,152 × (17.50 × 384)] – (17.50 × 288) |
= 7,280 – 5,040 |
= 2,240 F |
|
C |
= [1,248 ÷ 1,152 × (12.50 × 192)] – (12.50 × 240) |
= 2,600 – 3,000 |
= (400) U |
|
Total |
|
|
= $(320) U |
Labour Yield Variance (LEV)
= Standard cost per unit (Actual yield – Revised standard yield)
= SC × (AY – RSY)
= 18.40 × (1,000 – 1,080.33)
= 18.40 × –80.33
= (1,533) U
Working note for labour yield variance:
|
Revised actual time |
= AN (SGT – IT) |
|
|
A |
= 15 (48 – 8) |
= 600 |
|
B |
= 6 (48 – 8) |
= 240 |
|
C |
= 5 (48 – 8) |
= 200 |
|
Σ(RAT) |
|
= 1,040 |
Revised standard yield (RSY)
= SY × ƩRAT ÷ ƩST
= 1,200 × 1,040 ÷ 1,152
= 1083.33
Labour Efficiency Variance (LEV)
|
LEV |
= Standard rate × (Standard time – Actual time) |
|
|
|
|
= SR × (RST – AT) |
|
|
|
Grade A |
= 22.50 (480 – 720) |
= 22.50 × –240 |
= (5400) U |
|
Grade B |
= 17.50 (320 – 288) |
= 17.50 × 32 |
= 560 F |
|
Grade C |
= 12.50 (160 – 240) |
= 12.50 × –80 |
= (1,000) U |
|
Total |
|
|
= $(5,840) U |
Labour cost variance (LCV)
|
LCV |
= (Standard time × Standard rate) – (Actual time × Actual rate) |
||
|
|
= (RST × SR) – (AT × AR) |
|
|
|
Grade A |
= (480 × 22.50) – (720 × 20.00) |
= 10,800 – 14,400 |
= (3,600) U |
|
Grade B |
= (320 × 17.50) – (288 × 18.75) |
= 5,600 – 5,400 |
= 200 F |
|
Grade C |
= (160 × 12.50) – (240 × 10.00) |
= 2,000 – 2,400 |
= (400) U |
|
Total |
|
= $(3,800) U |
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2E
The following information is given to you about labour:
|
Standard labour mix |
Actual labour mix |
||||
|
Labour |
No. |
Rate per day ($) |
Labour |
No. |
Rate per day ($) |
|
Trained |
90 |
260 |
Trained |
70 |
265 |
|
Trainee |
40 |
236 |
Trainee |
30 |
240 |
|
Fresher |
50 |
224 |
Fresher |
60 |
220 |
Additional information:
Standard working days were 30 but actual worked days 28 days. Standard output per day of gang time 50 units whereas actual yield 52 units per gang day.
Required: (a) Labour Rate Variance (LRV); (b) Labour Mix Variance (LMV); (c) Labour Yield Variance (LYV);
(d) Labour Efficiency Variance (LEV); (e) Labour Cost Variance (LCV)
[Answer: LRV = 6,440 F; LMV = 148,960 F; LYV = 48,325 U;
LEV = Rs 198,285 U; LCV = $191,845 U]
SOLUTION:
By table method:
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
|
SN |
SR |
Amount |
AN |
AR |
Amount |
SR × AN |
|
90 |
260 |
23,400 |
70 |
265 |
18,550 |
260 × 70 = 18,200 |
|
|
Trainee |
40 |
236 |
9,440 |
30 |
240 |
7,200 |
236 × 30 = 7,080 |
|
Fresher |
50 |
224 |
11,200 |
60 |
220 |
13,200 |
224 × 60 = 13,400 |
|
Total |
|
|
SR2 = 44,040 |
|
|
ATR = 38,950 |
SR1 = 38,720 |
Others
|
Standard gang time (SGT) |
30* days |
|
Actual gang time (AGT) |
28 days |
|
Standard output per gang |
50 units |
|
Actual output or yield |
52 units |
|
Standard yield (SY) (30 × 50) |
1,500 units |
|
Actual yield (AY) (28 × 52) |
1,456 units |
Note: lack of information, standard gang hours and actual gang hours is same.
SR1 = standard rate in actual mix = $38,720
SR2 = standard rate in standard mix = $44,040
SR3 = standard rate in standard output = SGT × SR2 ÷ Standard yield = 30 × 44,040 ÷ 1,500 = $880.80
Again
|
L1 = AGT × (ATR) |
= 28 × 38,950 |
= $10,90,600 |
|
L2 = AGT × SR1 |
= 28 × 38,720 |
= $10,84,160 |
|
L3 = AGT × SR2 |
= 28 × 44,040 |
= $12,33,120 |
|
L4 = AY × SR3 |
= 1,456 × 888.8 |
= $12,82,445 |
Now,
|
Labour Rate Variance (LRV) |
= L1 – L2 = 10,90,600 – 10,84,160 |
= 6,440 U |
|
Labour Mix Variance (LMV) |
= L2 – L3 = 10,84,160 – 12,33,120 |
= (148,960) F |
|
Labour Yield Variance (LYV) |
= L3 – L4 = 12,33,120 – 12,82,445 |
= (49,325) F |
|
Labour Efficiency Variance (LEV) |
= L2 – L4 = 10,84,160 – 12,82,445 |
= (198,285) F |
|
Labour Cost Variance (LCV) |
= L1 – L4 = 10,90,600 – 12,82,445 |
= (191,845) F |
By formula method:
Given and working note:
|
Labour |
Standard |
Actual |
||||||
|
|
SN |
SR |
SGT |
ST = SN × SGT |
AN |
AR |
AGT |
AT = AN × AGT |
|
Trained |
90 |
260 |
30 |
2,700 |
70 |
265 |
28 |
1,960 |
|
Trainee |
40 |
236 |
30 |
1,200 |
30 |
240 |
28 |
840 |
|
Fresher |
50 |
224 |
30 |
1,500 |
60 |
220 |
28 |
1,680 |
|
Total |
180 |
|
|
ΣST = 5,400 |
160 |
|
|
ΣAT = 4,480 |
Here, standard yield 1,500 units and actual yields 1,456.
They are different; therefore revised standard time is required.
|
Revised standard time |
= Standard time × Actual labour yield ÷ Standard labour yield |
|
|
Trained |
= 2,700 × (1,456 ÷ 1,500) |
= 2,620.8 |
|
Trainee |
= 1,200 × (1,456 ÷ 1,500) |
= 1,164.8 |
|
Fresher |
= 1,500 × (1,456 ÷ 1,500) |
= 1,456 |
Labour rate variance (LRV)
|
LRV |
= AT (SR – AR) |
|
|
|
Trained |
= 1,960 (260 – 265) |
= 1,960 × – 5 |
= (9,800) U |
|
Trainee |
= 840 (236 – 240) |
= 840 × – 4 |
= (3,360) U |
|
Fresher |
= 1,680 (224 – 220) |
= 1,680 × 4 |
= 6,720 F |
|
Total |
|
|
= $6,440 U |
Labour mix variance (LMV)
|
LMV |
= [(ƩAT ÷ ƩST) SR × ST] – (SR × AT) |
|
|
|
Trained |
= [(4,480 ÷ 5,400) × 260 × 2,700] – (260 × 1,960) |
= 582,400 – 509,600 |
= 72,800 F |
|
Trainee |
= [(4,480 ÷ 5,400) × 236 × 1,200] – (236 × 840) |
= 234,951 – 198,240 |
= 36,709 F |
|
Fresher |
= [(4,480 ÷ 5,400) × 224 × 1,500] – (224 × 1,680) |
= 278,756 – 376,320 |
= (97,564) U |
|
Total |
|
|
= $11,945 F |
Labour Yield Variance (LEV)
= Standard cost per unit × (Actual yield – Standard yield)
= SC × (AY – SY)
= 880.8 × (1,456 – 1,500)
= 880.8 × –44
= (38,755)
Standard cost per unit (SC)
= SR2 × SGT ÷ Standard yield = SR3 = Total standard cost ÷ Standard yield
= 44,040 × 30 ÷ 1,500
= 880.8
Keep in Mind (KIM)
|
Answer is different between table method and formula method because standard number of workers (SN) and actual number of workers (AN) are different. |
Labour Efficiency Variance (LEV)
|
LEV |
= Standard rate × (Revised standard time – Actual time) |
||
|
|
= SR × (RST – AT) |
|
|
|
Trained |
= 260 × (2620.8 – 1,960) |
= 260 × 660.8 |
= 171,808 F |
|
Trainee |
= 236 × (1,164.8 – 840) |
= 236 × 324.8 |
= 76,653 F |
|
Fresher |
= 224 × (1,456 – 1,680) |
= 224 × – 224 |
= (50,176) U |
|
Total |
|
|
= $198,285 F |
Labour cost variance (LCV)
|
LCV |
= (Revised standard time × Standard rate) – (Actual time × Actual rate) |
||
|
|
= (RST × SR) – (AT × AR) |
|
|
|
Trained |
= (2,620.8 × 260) – (1,960 × 265) |
= 681,408 – 519,400 |
= 162,008 F |
|
Trainee |
= (1,164.8 × 236) – (840 × 240) |
= 274,893 – 201,600 |
= 73,293 F |
|
Fresher |
= (1,456 × 224) – (1,680 × 220) |
= 326,144 – 369,600 |
= (43,456) U |
|
Total |
|
|
= $191,845 F |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2F
The following information available:
|
Standard |
Actual |
||||
|
Labour |
No. |
Rate per hour ($) |
Labour |
No. |
Rate per hour ($) |
|
Grade A |
30 |
24 |
Grade A |
40 |
21.0 |
|
Grade B |
15 |
18 |
Grade B |
10 |
19.5 |
|
Grade C |
10 |
12 |
Grade C |
5 |
9.0 |
Normal working hours in week is 40 hours.
It is expected to produce by gang 2,000 hours during period. Actual yield was 1,980 hours due to 4 abnormal idle times.
Required: (1) Labour rate variance; (2) Labour ideal time variance; (3) Labour mix variance; (4) Labour yield variance
(5) Labour efficiency variance; (6) Labour cost variance
[Answer: LRV = (4,800) F; LITV = 4,800 U; LMV = 3,240 U;
LYV = (3,999) F; LEV = (4,044) F; LCV = (756) F]
SOLUTION:
Given and working note:
|
Labour Grade |
Standard |
Actual |
Standard × Actual |
||||
|
|
SN |
SR |
Amount |
AN |
AR |
Amount |
SR × AN |
|
Grade A |
30 |
24 |
720 |
40 |
21.0 |
840 |
24 × 40 = 960 |
|
Grade B |
15 |
18 |
270 |
10 |
19.5 |
195 |
18 × 10 = 180 |
|
Grade C |
10 |
12 |
120 |
5 |
9.0 |
45 |
12 × 5 = 60 |
|
Total |
|
SR2 = 1,110 |
|
|
ATR = 1,080 |
SR1 = 1,200 |
|
Others
|
Standard gang time (SGT) |
40* hours |
|
Idle time |
4 DLH |
|
Standard yield (SY) (given) |
2,000 units |
|
Actual gang time (AGT) |
40* hours |
|
|
|
|
Actual output or yield |
1,980 |
Note: lack of information, standard gang hours and actual gang hours is same.
SR1 = standard rate in actual mix = $1,200
SR2 = standard rate in standard mix = $1,110
SR3 = standard rate in standard output = SGT × SR2 ÷ Standard yield = 40 × 1,100 ÷ 2,000 = $22.20
Again,
|
L1 |
= AGT × ATR |
= 40 × 1,080 |
= 43,200 |
|
L2 |
= AGT × SR1 |
= 40 × 1,200 |
= 48,000 |
|
L3 |
= (AGT – IT) × SR1 |
= (40 –4) × 1,200 |
= 43,200 |
|
L4 |
= (AGT – IT) × SR2 |
= (40 –4) × 1,110 |
= 39,960 |
|
L5 |
= AY × SR3 |
= 1,980 × 22.20 |
= 43,956 |
Now,
|
Labour Rate Variance (LRV) |
= L1 – L2 |
= 43,200 – 48,000 |
= (4,800) F |
|
Labour Ideal Time Variance (LITV) |
= L2 – L3 |
= 48,000 – 43,200 |
= 4,800 U |
|
Labour Mix Variance (LMV) |
= L3 – L4 |
= 43,200 – 39,960 |
= 3,240 U |
|
Labour Yield Variance (LEV) |
= L4 – L5 |
= 39,960 – 43,956 |
= (3,996) F |
|
Labour Efficiency Variance (LEV) |
= L2 – L5 |
= 48,000 – 43,956 |
= (4,044) F |
|
Labour Cost Variance (LCV) |
= L1 – L5 |
= 43,200 – 43,956 |
= (756) F |
By formula method:
Given and working note:
|
Labour |
Standard |
Actual |
||||||
|
|
SN |
SR |
SGT |
ST = SN × SGT |
AN |
AR |
AGT |
AT = AN × AGT |
|
Grade A |
30 |
24 |
40 |
1,200 |
40 |
21.00 |
40 |
1,600 |
|
Grade B |
15 |
18 |
40 |
600 |
10 |
19.50 |
40 |
400 |
|
Grade C |
10 |
12 |
40 |
400 |
5 |
9.00 |
40 |
200 |
|
Total |
55 |
|
|
ΣST = 2,200 |
55 |
|
|
ΣAT = 2,200 |
Here, standard yield 2,000 units and actual yield 1,980.
They are different; therefore revised standard time is required.
|
Revised standard time |
= Standard time × Actual yield ÷ Standard yield |
|
|
Grade A |
= 1,200 × (1,980 ÷ 2,000) |
= 1,188 |
|
Grade B |
= 600 × (1,980 ÷ 2,000) |
= 594 |
|
Grade C |
= 400 × (1,980 ÷ 2,000) |
= 396 |
Labour rate variance (LRV)
|
(LRV) |
= AT (SR – AR) |
||
|
Grade A |
= 1,600 (24 – 21) |
= 1,600 × 3 |
= 4,800 F |
|
Grade B |
= 400 (18 – 19.5) |
= 400 × –1.5 |
= (600) U |
|
Grade C |
= 200 (12 – 9) |
= 200 × 3 |
= 600 F |
|
Total |
|
|
= 4,800 F |
Labour ideal time variance (LITV)
|
LITV |
= SR × IT |
|
|
Grade A |
= 24 × 160 |
= 3840 U |
|
Grade B |
= 18 × 40 |
= 720 U |
|
Grade C |
= 12 × 20 |
= 240 U |
|
Total |
|
$4,800 U |
Working note:
|
Idle time |
= Actual No. of worker × Idle time per worker |
|
|
Grade A |
= 40 × 4 |
= 160 |
|
Grade B |
= 10 × 4 |
= 40 |
|
Grade C |
= 5 × 4 |
= 20 |
Labour Mix Variance (LMV)
|
LMV |
= [ΣAT ÷ ΣST × SR × ST] – (SR × AT) |
||
|
Grade A |
= [2,200 ÷ 2,200 × (24 × 1,200)] – (24 × 1,600) |
= 28,800 – 38,400 |
= (9,600) U |
|
Grade B |
= [2,200 ÷ 2,200 × (18 × 600)] – (18 × 400) |
= 10,800 – 7,200 |
= 3,600 F |
|
Grade C |
= [2,200 ÷ 2,200 × (12 × 400)] – (12 × 200) |
= 4,800 – 2,400 |
= 2,400 F |
|
Total |
|
|
= $(3,600) U |
Labour Yield Variance (LEV)
= Standard cost per unit (Actual yield – Revised standard yield)
= SC (AY – RSY)
= 22.20 (1,980 – 1,800)
= 22.20 × 180
= 3,996 F
Working note for labour yield variance:
|
Standard cost |
= SN × SR × SGT |
|
|
Grade A |
= 30 × 24 × 40 |
= 28,800 |
|
Grade B |
= 15 × 18 × 40 |
= 10,800 |
|
Grade C |
= 10 × 12 × 40 |
= 4,800 |
|
Total |
|
= $44,400 |
Standard cost per unit (SC)
= Total standard cost ÷ Standard yield
= $44,400 ÷ 2,000 units
= $22.20
Revised actual time (RAT)
|
RAT |
= AN (SGT – IT) |
|
|
A |
= 40 (40 – 4) |
= 1,440 |
|
B |
= 10 (40 – 4) |
= 360 |
|
C |
= 5 (40 – 4) |
= 180 |
|
Σ(RAT) |
|
= 1,980 |
Revised standard yield (RSY)
= SY × ƩRAT ÷ ƩST
= 2,000 × 1980 ÷ 2,200
= 1,800
Labour Efficiency Variance (LEV)
|
LEV |
= Standard rate × (Revised standard time – Actual time) |
||
|
|
= SR × (RST – AT) |
||
|
Grade A |
= 24 (1,188 – 1,600) |
= 24 × –412 |
= (9,888) U |
|
Grade B |
= 18 (594 – 400) |
= 18 × 194 |
= 3,492 F |
|
Grade C |
= 12 (396 – 200) |
= 12 × 196 |
= 2,352 F |
|
Total |
|
|
= $4,044 U |
Labour cost variance (LCV)
|
LCV |
= (Revised standard time × Standard rate) – (Actual time × Actual rate) |
||
|
|
= (RST × SR) – (AT × AR) |
||
|
Trained |
= (1,188 × 24) – (1,600 × 21) |
= 28,512 – 33,600 |
= (5,088) |
|
Trainee |
= (594 × 18) – (400 × 19.5) |
= 10,692 – 7,800 |
= 2,892 F |
|
Fresher |
= (396 × 12) – (200 × 9) |
= 4,752 – 1,800 |
= 2,952 F |
|
Total |
|
|
= $756 F |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2G
GM Manufacturing Company has following data:
|
Standard |
Actual |
||||||
|
Labour |
No./mix |
Rate ($) |
Cost |
Labour |
No./mix |
Rate ($) |
Cost |
|
Skilled |
32 |
30 |
960 |
Skilled |
28 |
40 |
1,120 |
|
Semi-skilled |
12 |
20 |
240 |
Semi-skilled |
18 |
30 |
540 |
|
Unskilled |
6 |
10 |
60 |
Unskilled |
4 |
20 |
80 |
|
Total |
50 |
|
1,260 |
Total |
50 |
|
1,740 |
|
Standard output 1,800 units |
Actual worked hours during a week 40 |
||||||
|
Standard gang time (STG)? |
|
||||||
Required: (Direct)
(1) Labour rate variance; (2) Labour mix variance; (3) Labour efficiency variance; (4) Labour cost variances
[Answer: LRV = Rs 20,000 U; LMV = Rs (800) F;
LEV = Rs 4,240 U; LCV = Rs 24,240 U]
SOLUTION
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
|
SN |
SR |
SN × SR |
AN |
AR |
AN × AR |
Std Rate × Actual No. |
|
Skilled |
32 |
30 |
960 |
28 |
40 |
1120 |
30 × 28 = 840 |
|
Semi-skilled |
12 |
20 |
240 |
18 |
30 |
540 |
20 × 18 = 360 |
|
Unskilled |
6 |
10 |
60 |
4 |
20 |
80 |
10 × 4 = 40 |
|
Total |
SN = 50 |
|
SR2 = 1260 |
|
|
ARN =1740 |
SR1 = 1,240 |
Other
Standard yield (SY) = 1800
Standard gang time (STG) = SY ÷ SN = 1,800 ÷ 50 = 36
Actual gang time (AGT) = 40 hours
Actual yield/output (AY) = Nil
SR1 = standard rate in actual mix = $1,240
SR2 = standard rate in standard mix = $1,260
Again
|
L1 |
= AGT × (AN × AR) |
= 40 × 1740 |
= $69,600 |
|
L2 |
= AGT × SR1 |
= 40 × 1240 |
= $49,600 |
|
L3 |
= AGT × SR2 |
= 40 × 1260 |
= $50,400 |
|
L4 |
= SGT × SR2 |
= 36 × 1260 |
= $45,360 |
Now,
|
Labour Rate Variance (LRV) |
= L1 – L2 |
= 69,600 – 49,600 |
= 20,000 U |
|
Labour Mix Variance (LMV) |
= L2 – L3 |
= 49,600 – 50,400 |
= – 800 F |
|
Labour Efficiency Variance (LEV) |
= L2 – L4 |
= 49,600 – 45,360 |
= 4,240 U |
|
Labour Cost Variance (LCV) |
= L1 – L4 |
= 69,600 – 45,360 |
= 24,240 U |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2H
The following information is given to you about labour by XYZ Manufacturing Company:
|
Standard labour mix |
Actual labour mix |
||||
|
Labour |
No. |
Rate per hour ($) |
Labour |
No. |
Rate per hour ($) |
|
Grade A |
10 |
18.75 |
Grade A |
13 |
18.00 |
|
Grade B |
5 |
12.00 |
Grade B |
4 |
12.75 |
|
Grade C |
5 |
10.50 |
Grade C |
3 |
9.75 |
Normal working hours in a week 40 hours and expected to produced 1,000 units.
2 hours lost due to abnormal idle time and 960 units were produced.
Required: (a) Labour rate variance; (b) Labour ideal time variance; (c) Labour mix variance; (d) Labour yield variance;
(e) Labour efficiency variance; (f) Labour cost variance
[Answer: LRV = (360) F; LITV = 646.50 U; LMV = (930) F;
LYV = (120) F; LEV = (1,330) F; LCV = (1,440)]
SOLUTION:
By formula method:
Given and working note:
|
Labour |
Standard |
Actual |
||||||
|
|
SN |
SR |
SGT |
ST = SN × SGT |
AN |
AR |
AGT |
AT = AN × AGT |
|
Grade A |
10 |
18.75 |
40 |
400 |
13 |
18.00 |
40 |
520 |
|
Grade B |
5 |
12.00 |
40 |
200 |
4 |
12.75 |
40 |
160 |
|
Grade C |
5 |
10.50 |
40 |
200 |
3 |
9.75 |
40 |
120 |
|
Total |
20 |
|
|
ΣST = 800 |
20 |
|
|
ΣAT = 800 |
Here, standard yield 1,000 units and actual yields 960.
They are different; therefore revised standard time is required.
Revised standard time (RST)
|
RST |
= Standard time × Actual yield ÷ Standard yield |
|
|
Grade A |
= 400 × (960 ÷ 1,000) |
= 384 |
|
Grade B |
= 200 × (960 ÷ 1,000) |
= 192 |
|
Grade C |
= 200 × (960 ÷ 1,000) |
= 192 |
|
Total hours |
|
= 768 |
Labour rate variance (LRV)
|
LRV |
= AT (SR – AR) |
||
|
Grade A |
= 520 (18.75 –18.00) |
= 520 × 0.75 |
= 390 F |
|
Grade B |
= 160 (12.00 – 12.75) |
= 160 × – 0.75 |
= (120) U |
|
Grade C |
= 120 (10.50 – 9.75) |
= 120 × 0.75 |
= 90 F |
|
Total |
|
|
= 360 F |
Labour Idle Time Variance (LITV)
Given and working note:
|
Idle time |
= AN × 2 hours |
|
|
Grade A |
= 13 × 2 |
= 26 hours |
|
Grade B |
= 4 × 2 |
= 8 hours |
|
Grade C |
= 3 × 2 |
= 6 hours |
Again,
|
LITV |
= SR × IT |
|
|
Grade A |
= 18.75 × 26 |
= 487.50 U |
|
Grade B |
= 12.00 × 8 |
= 96 U |
|
Grade C |
= 10.50 × 6 |
= 63 U |
|
Total |
|
= 646.50 U |
Labour mix variance (LMV)
|
LMV |
= ƩAT ÷ ƩST × SR × ST – (SR × AT) |
||
|
Grade A |
= [(800 ÷ 800) × 18.75 × 400] – (18.75 × 520) |
= 7,500 – 9,750 |
= (2250) U |
|
Grade B |
= [(800 ÷ 800) × 12.00 × 200] – (12.00 × 160) |
= 2,400 – 1,920 |
= 480 F |
|
Grade C |
= [(800 ÷ 800) × 10.50 × 200] – (10.50 × 120) |
= 2,100 – 1,260 |
= 840 F |
|
Total |
|
|
= (930) U |
Labour Yield Variance (LEV)
= Standard cost per unit × (Actual yield – Revised standard yield)
= SC × (AY – RSY)
= 12 × (960 – 950)
= 12 × 10
= 120 F
Working note for labour yield variance:
|
Standard cost |
= SN × SR × SGT |
|
|
Grade A |
= 10 × 18.75 × 40 |
= 7,500 |
|
Grade B |
= 5 × 12.00 × 40 |
= 2,400 |
|
Grade C |
= 5 × 10.50 × 40 |
= 2,100 |
|
Total |
|
$12,000 |
Standard cost per unit (SC)
= Total standard cost ÷ Standard yield
= $12,000 ÷ 1,000 units
= $12
Revised actual time
|
RAT |
= AN (SGT – IT) |
|
|
A |
= 13 (40 –2) |
= 494 |
|
B |
= 4 (40 –2) |
= 152 |
|
C |
= 3 (40 –2) |
= 114 |
|
ΣRAT |
|
= 760 |
Revised standard yield (RSY)
= SY × ƩRAT ÷ ƩST
= 1,000 × 760 ÷ 800
= 950
Labour Efficiency Variance (LEV)
|
LEV |
= Standard rate × (Revised standard time – Actual time) |
||
|
|
= SR × (RST – AT) |
||
|
Grade A |
= 18.75 (384 – 520) |
= 18.75 × –136 |
= (2,550) U |
|
Grade B |
= 10.00 (192 – 160) |
= 10.00 × 32 |
= 320 F |
|
Grade C |
= 12.50 (192 – 120) |
= 12.50 × 72 |
= 900 F |
|
Total |
|
|
= (1,330) U |
Labour cost variance (LCV)
|
LCV |
= (Revised standard time × Standard rate) – (Actual time × Actual rate) |
||
|
|
= (RST × SR) – (AT × AR) |
||
|
Grade A |
= (384 × 18.75) – (520 × 18.00) |
= 7,200 – 9,360 |
= (2,160) U |
|
Grade B |
= (192 × 10.00) – (160 × 12.75) |
= 1,920 – 2,040 |
= (120) U |
|
Grade C |
= (192 × 12.50) – (160 × 9.75) |
= 2,400 – 1,560 |
= 840 F |
|
Total |
|
|
= (1,440) U |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2I
|
Standard: |
||
|
Raw materials |
Composition |
Rate |
|
A |
40% |
$5 |
|
B |
60% |
$4 |
Standard loss in blending is 10%
An article is produced by blending two raw materials:
The company produced 1,000 articles out of the following details during March:
|
Raw materials |
Stock (kg) March 1 |
Stock (kg) March 31 |
Purchases (kg) |
During March ($) |
|
A |
60 |
30 |
570 |
3,135 |
|
B |
40 |
50 |
910 |
3,185 |
Find out: (a) Material price variance; (b) Materials usage variance; (c) Material mix variance; (d) Materials yield variance
[Answer: (nearest) MPV = Rs (150) F; MUV = Rs 1,700 U;
MMV= Nil; MYV= Rs 1,700 U;
* Production = Opening stock + Purchase – Closing stock;
AQ = A + B = 600 + 900 = 1,500 units]
SOLUTION:
Given and working note:
|
Actual quantity or production |
= Opening stock + Purchase – Closing stock |
|
|
A |
= 60 + 570 – 30 |
= 600 |
|
B |
= 40 + 910 – 50 |
= 900 |
|
|
|
= 1,500 Kg |
Standard quantity:
A = 1500 × 40% = 600 kg
B = 1500 × 60% = 900 kg
Actual price per unit = purchase amount ÷ purchase quantity
A = $3,175 ÷ 570 kg = $5.50
B = $3,185 ÷ 910 kg = $3.50
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
|
SQ |
SR |
SQ × SR |
AQ |
AR |
AQ × AR |
Std Rate × Actual No. |
|
A |
600 |
5 |
3,000 |
600 |
5.5 |
3,300 |
5 × 600 = 3,000 |
|
B |
900 |
4 |
3,600 |
900 |
3.5 |
3,150 |
4 × 900 = 3,600 |
|
Total |
SQ = 1,500 |
|
SQR = 6,600 |
AQ =1,500 |
|
AQR =6,450 |
AQSR = 6,600 |
|
SP1 = standard price per unit of actual quantity used |
= ASQR ÷ AQ |
= 6,600 ÷ 1,500 |
= 4.4 |
|
SP2 = standard price per unit of standard quantity used |
= SQR ÷ SQ |
= 6,600 ÷ 1,500 |
= 4.4 |
|
SP3 = standard price per unit of standard output |
= SQR ÷ SY |
= 6,600 ÷ 1,350 |
= 4.9 |
Again,
|
M1 |
= AQ × AP |
= AQR |
= 6,450 |
|
M2 |
= AQ × SP1 |
= 1,500 × 4.4 |
= 6,600 |
|
M3 |
= AQ × SP2 |
= 1,500 × 4.4 |
= 6,600 |
|
M4 |
= AY × SP3 |
= 1,000 × 4.9 |
= 4,900 |
Now,
|
Materials price variance (MPV) |
= M1 – M2 |
= 6450 – 6600 |
= – 150 F |
|
Materials usage variance (MUV) |
= M2 – M4 |
= 6600 – 4900 |
= 1700 UF |
|
Materials mix variance (MMV) |
= M2 – M3 |
= 6600 – 6600 |
= NIL |
|
Materials yield variance (MYV) |
= M3 – M4 |
= 6600 – 4900 |
= 1700 UF |
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TU Questions and Solutions
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2061 Modified
Direct labour and other have been provided below by XYZ Company:
|
Standard |
Actual |
||||||
|
Labour |
No. |
Rate ($) |
Cost ($) |
Labour |
No. |
Rate ($) |
Cost ($) |
|
Skilled |
10 |
40 |
400 |
Skilled |
10 |
42.5 |
425 |
|
Semiskilled |
20 |
20 |
400 |
Semiskilled |
25 |
18.0 |
450 |
|
Unskilled |
30 |
10 |
300 |
Unskilled |
25 |
12.0 |
300 |
|
|
60 |
|
1,100 |
|
60 |
|
1,175 |
|
Standard output per labour hour 0.5 units |
Actual output 1260 units |
||||||
|
40 hours In a week are paid |
1 DLH was lost for no availability of materials |
||||||
Required: (Direct): (a) Labour rate variance; (b) Labour idle time variance
(c) Labour mix variance; (d) Labour efficiency (sub/yield) variance; (e) Labour cost variances
[Answer: LRV = $1,000 U; LITV = $1,150 U; LMV = $1,950 U; LYV = ($3,304) F;
LEV = ($204) F; LCV = $796 U] *SR1 = 1,150; SR2 = 1,100; SR3 = 36.67
SOLUTION
Given and working note:
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
SN |
SR |
SN × SR |
AN |
AR |
AN × AR |
Std rate × Actual No. |
|
|
Skilled |
10 |
40 |
400 |
10 |
42.5 |
425 |
40 × 10 = 400 |
|
Semi-skilled |
20 |
20 |
400 |
25 |
18.0 |
450 |
20 × 25 = 500 |
|
Unskilled |
30 |
10 |
300 |
25 |
12.0 |
300 |
10 × 25 = 250 |
|
Total |
SN = 60 |
|
SR2 =1,100 |
|
ARN = 1,175 |
SR1 = 1,150 |
|
Others
|
Standard output per gang hours |
0.5 units |
||||||
|
Standard gang time (SGT) |
40* hours |
||||||
|
Standard yield (SY) = SN × SGT × 0.5 = 60 × 40 × 0.5 |
1,200 units |
||||||
|
|
|
||||||
|
Actual gang time (AGT) |
40* hours |
||||||
|
Actual yield (AY) |
1,260 units |
||||||
|
|
|||||||
|
Note: lack of information, standard gang hours and actual gang hours is same. |
|||||||
|
|
|||||||
|
SR1 |
= standard rate in actual mix |
= $1,150 |
|||||
|
SR2 |
= standard rate in standard mix |
= $1,100 |
|||||
|
SR3 |
= standard rate in standard output |
= Standard gang time x SR2 ÷ Standard yield = 40 × 1,100 ÷ 1,200 = $36.67 |
|||||
|
|
|||||||
|
Again, |
|||||||
|
L1 |
= AGT × ATR |
= 40 × 1175 |
= $47,000 |
||||
|
L2 |
= AGT × SR1 |
= 40 × 1150 |
= $46,000 |
||||
|
L3 |
= (AGT – IT) × SR1 |
= (40 – 1) × 1,150 |
= $44,850 |
||||
|
L4 |
= (AGT – IT) × SR2 |
= (40 – 1) × 1,100 |
= $42,900 |
||||
|
L5 |
= AY × SR3 |
= 1260 × 36.67 |
= $46,204 |
||||
|
Now, |
|||||||
|
Labour rate variance (LRV) |
= L1 – L2 |
= 47,000 – 46,000 |
= 1,000 U |
||||
|
Labour idle time variance (LITV) |
= L2 – L3 |
= 46,000 – 44,850 |
= 1,150 U |
||||
|
Labour mix variance (LMV) |
= L3 – L4 |
= 44,850 – 42,900 |
= 1,950 U |
||||
|
Labour yield variance (LYV) |
= L4 – L5 |
= 42,900 – 46,204 |
= (3,304) F |
||||
|
Labour efficiency variance (LEV) |
= L2 – L5 |
= 46,000 – 46,204 |
= (204) F |
||||
|
Labour cost variance (LCV) |
= L1 – L5 |
= 47,000 – 46,204 |
= 796 U |
||||
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2061/S Modified
The standard labour cost and the actual labour cost incurred by a manufacturing company have been presented below:
|
Standard |
Actual |
||||||
|
Labour |
No. |
Rate ($) |
Cost ($) |
Labour |
No. |
Rate ($) |
Cost ($) |
|
Skilled |
4 |
60 |
240 |
Skilled |
3 |
65 |
195 |
|
Semiskilled |
6 |
40 |
240 |
Semiskilled |
8 |
35 |
280 |
|
Unskilled |
10 |
20 |
200 |
Unskilled |
9 |
20 |
180 |
|
Total |
20 |
|
680 |
Total |
20 |
|
655 |
|
Standard output per gang hour 20 units |
output produced 780 units |
||||||
|
40 hours in a week required to work and paid |
|
||||||
Required: Five labour variances
[Answer: LRV= (1,000) F; LMV= Nil, LYV= 680 U; LEV= 680 U;
LCV= (320) F] *SR1 = 680; SR2 = 680; SR3 = 34
SOLUTION
Given and working note:
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
|
SN |
SR |
SN × SR |
AN |
AR |
AN × AR |
Std. rate × Actual No. |
|
Skilled |
4 |
60 |
240 |
3 |
65 |
195 |
60 × 3 = 180 |
|
Semi-skilled |
6 |
40 |
240 |
8 |
35 |
280 |
40 × 8 = 320 |
|
unskilled |
10 |
20 |
200 |
9 |
20 |
180 |
20 × 9 = 180 |
|
Total |
SR2 = 680 |
|
ARN= 655 |
SR1 = 680 |
|||
Others
|
Standard output per gang hours |
20 units |
Actual gang time (AGT) |
40* hours |
||||||
|
Standard gang time (SGT) |
40* hours |
Actual yield (AY) |
780 units |
||||||
|
Standard yield (SY) = 20 × SGT = 20 × 40 |
800 units |
|
|
||||||
|
|
|||||||||
|
Note > lack of information, standard gang hours and actual gang hours is same. |
|||||||||
|
|
|||||||||
|
SR1 = standard rate in actual mix |
= $680 |
||||||||
|
SR2 = standard rate in standard mix |
= $680 |
||||||||
|
SR3 = standard rate in standard output |
= (Standard gang time x SR2) ÷ Standard yield = 40 × 680 ÷ 800 = $34 |
||||||||
|
|
|||||||||
|
Again, |
|||||||||
|
L1 |
= AGT × ARN |
= 40 × 655 |
= $26,200 |
||||||
|
L2 |
= AGT × SR1 |
= 40 × 680 |
= $27,200 |
||||||
|
L3 |
= AGT × SR2 |
= 40 × 680 |
= $27,200 |
||||||
|
L4 |
= AY × SR3 |
= 780 × 34 |
= $26,520 |
||||||
|
|
|||||||||
|
Now, |
|||||||||
|
Labour rate variance (LRV) |
= L1 – L2 |
= 26,200 – 27,200 |
= (1,000) F |
||||||
|
Labour mix variance (LMV) |
= L2 – L3 |
= 27,200 – 27,200 |
= Nil |
||||||
|
Labour yield variance (LYV) |
= L3 – L4 |
= 27,200 – 26,520 |
= 680 U |
||||||
|
Labour efficiency variance (LEV) |
= L2 – L4 |
= 27,200 – 26,520 |
= 680 U |
||||||
|
Labour cost variance (LCV) |
= L1 – L4 |
= 26,200 – 26,520 |
= (320) F |
||||||
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2063 Modified
The detailed information regarding direct labour standard and use has been summarized below:
|
Standard |
Actual |
||||||
|
Labour |
No. |
Rate ($) |
Cost |
Labour |
No. |
Rate ($) |
Cost |
|
Skilled |
4 |
60 |
240 |
Skilled |
5 |
60 |
300 |
|
Semiskilled |
7 |
40 |
280 |
Semiskilled |
5 |
50 |
250 |
|
Unskilled |
9 |
20 |
180 |
Unskilled |
10 |
18 |
180 |
|
Total |
20 |
|
700 |
Total |
20 |
|
730 |
|
Standard output per gang hour will be 10 units. |
Actual output realized 430 units |
||||||
|
Labour will be required to work for 40 hours in a week and they will be paid for those hours |
|
||||||
Required: (Direct): (a) Labour rate variance; (b) Labour mix variance; (c) Labour efficiency (sub/yield) variance;
(d) Labour efficiency (use) variance; (e) Labour cost variances
[Answer: LRV= 1,200 U; LMV= Nil, LYV= (2,100) F; LEV= (2,100) F;
LCV= (900) F] *SR1 = 700; SR2 = 700; SR3 = 70
SOLUTION
Given and working note:
|
Labour |
Standard |
Actual |
Standard × Actual |
||||
|
|
SN |
SR |
Amount |
AN |
AR |
Amount |
SR × AN |
|
Skilled |
4 |
60 |
240 |
5 |
60 |
300 |
60 × 5 = 300 |
|
Semiskilled |
7 |
40 |
280 |
5 |
50 |
250 |
40 × 5 = 200 |
|
Unskilled |
9 |
20 |
180 |
10 |
18 |
180 |
20 × 10 = 200 |
|
Total |
SR2 = 700 |
|
ATR = 730 |
SR1 = 700 |
|||
Others
|
Standard gang time (SGT) |
40* hours |
Actual gang time (AGT) |
40* hours |
||||||
|
Standard yield (SY) = SGT × 10 = 40 × 10 |
400 units |
Actual yield (AY) |
430 |
||||||
|
|
|||||||||
|
Note: lack of information, standard gang hours and actual gang hours is same. |
|||||||||
|
|
|||||||||
|
SR1 |
= standard rate in actual mix |
= $700 |
|||||||
|
SR2 |
= standard rate in standard mix |
= $700 |
|||||||
|
SR3 |
= standard rate in standard output |
= (Standard gang time x SR2) ÷ Standard yield = 40 × 700 ÷ 400 = $70 |
|||||||
|
|
|||||||||
|
Again, |
|||||||||
|
L1 |
= AGT × ATR |
= 40 × 730 |
= 29,200 |
||||||
|
L2 |
= AGT × SR1 |
= 40 × 700 |
= 28,000 |
||||||
|
L3 |
= AGT × SR2 |
= 40 × 700 |
= 28,000 |
||||||
|
L4 |
= AY × SR3 |
= 430 × 70 |
= 30,100 |
||||||
|
Now, |
|||||||||
|
Labour rate variance (LRV) |
= L1 – L2 |
= 29,200 – 28,000 |
= 1,200 U |
||||||
|
Labour mix variance (LMV) |
= L2 – L3 |
= 28,000 – 28,000 |
= Nil |
||||||
|
Labour yield variance (LYV) |
= L3 – L4 |
= 28,000 – 30,100 |
= (2,100) F |
||||||
|
Labour efficiency variance (LEV) |
= L2 – L4 |
= 28,000 – 30,100 |
= (2,100) F |
||||||
|
Labour cost variance (LCV) |
= L1 – L4 |
= 29,200 – 30,100 |
= (900) F |
||||||
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#####
Problems and Answers of Labour Variance in Standard Costing |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2A
The following extracted information is available:
|
Labour |
Standard |
Actual |
||
|
No. of workers |
Wage rate per hour |
No. of workers |
Wage rate per hour |
|
|
Semi -skilled |
200 |
$37.50 |
220 |
$36.00 |
|
Unskilled |
100 |
$22.50 |
80 |
$24.00 |
Standard time fixed for work 50 hours. Work actually completed in also 50 hours.
Required: (Direct) (a) Labour rate variance; (b) Labour mix variance; (c) Labour efficiency variance; (d) Labour cost variances
[Answer: LRV = $10,500 F; LMV = $15,000 U; LEV = $15,000 U;
LCV = $4,500 U] *SR1 = 10,050; SR2 = 9,750;
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2B
ABC Company gives you following standard and actual data:
|
Standard |
Actual |
||||||
|
Workers |
No. |
Rate per hour |
Hours worked |
Workers |
No. |
Rate per hour |
Hours Worked |
|
Grade A |
50 |
$50 |
100 |
Grade A |
30 |
$75 |
120 |
|
Grade B |
100 |
$25 |
100 |
Grade B |
120 |
$20 |
120 |
Required: (a) Labour mix variance; (b) Labour efficiency variance; (c) Labour rate variance; (d) Labour yield variance
[Answer: LRV = $18,000 U; LMV = ($60,000) F; LYV = $100,000 U;
LEV = $40,000 U] *SR1 = 4500; SR2 = 5000;
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2C
The following extracted data related to labour of ABC Company has given below:
|
Standard |
Actual |
||||
|
Labour |
Hour per unit |
Rate per hour |
Labour |
Hours per unit |
Rate per hour |
|
Skilled |
5 |
37.50 |
Skilled |
4.5 |
50.00 |
|
Semi-skilled |
4 |
18.75 |
Semi-skilled |
4.2 |
18.75 |
|
Unskilled |
8 |
12.50 |
Unskilled |
10 |
11.25 |
Standard and actual productions were 1,000 units. Standard and actual gang time 48 hours in a week.
Required: (Direct): (a) Labour rate variance; (b) Labour mix variance; (c) Labour yield variance; (d) Labour efficiency variance;
(d) Labour cost variances
[Answer: LRV = $2,100 U; LMV = $480 U; LYV = Nil; LEV = $480 U;
LCV = $2,580 U; *SR1 = 372.5; SR2 = 362.5; SR3 = 17.40
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 2D
The details regarding labor cost have been provided as:
|
Type |
Standard |
Actual |
||||
|
No. |
Rate/Hour |
Cost |
No. |
Rate/Hour |
Cost |
|
|
Skilled |
1 |
$50 |
50 |
1 |
$45 |
45 |
|
Semi- skilled |
3 |
$30 |
90 |
4 |
$30 |
120 |
|
Unskilled |
6 |
$20 |
120 |
5 |
$22 |
110 |
|
|
10 |
|
260 |
10 |
|
275 |
40 hours a week needed to work and paid. Actual output produced 360 units. Standard output per gang hour is 8 units.
Required: (direct): (a) Labour rate variance; (b) Labour mix variance; (c) Labour efficiency sub (yield) variance;
(d) Labour efficiency variance; (e) Labour cost variance
[Answer: LRV = $200 U; LMV = $400 U; LYV = ($1,300) F; LEV = ($900) F;
LCV = ($700) F] *SR1 = 270; SR2 = 260; SR3 = 32.5
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