Page 232 - DCOM206_COST_ACCOUNTING_II

Unit 12: Standard Costing

The variance may be favourable or adverse because of the following reasons: Notes
Favourable Reasons:
(a) Improved method of production,
(b) Employment of more efficient workers,

(c) Introduction of new and improved tools,
(d) Good working condition,
(e) Use of best quality materials, and
(f) Right man at right work.

Adverse Reasons:
(a) Unsatisfactory working conditions,
(b) Improper supervision,
(c) Employment of less skilled workers,

(d) Less material specification leading to difficulty in operation,
(e) Inferior quality of materials,
(f) Lack of cooperation between labours, and
(g) Failure of power supply during the working hours.

(iv) Labour Mix Variance: This variance is similar to material mix variance and it arises
whenever there is a deviation in the grade of labour employed from the standard labour
mix. That means, when the actual composition of labour force is not in accordance with the
standard mix, this variance arises. It is calculated as below:
Labour Mix Variance = Standard rate × (Revised standard time – Actual time)

OR LMV = SR (RST – AT)
Total actualtime
Revised Standard Time = ×Standard time
Total standardtime
(v) Labour Idle Time Variance: The idle time variance represents the difference between
hours paid and hours worked, i.e., idle hours multiplied by the standard wage rate or
labour rate per hour. This variance may arise due to illness, machine breakdown, holdups
on the production line because of lack of material. The formula is:
Labour Idle Time Variance = Abnormal idle time × Standard rate per hour
OR LITV = IT × SR
Idle time variance will be always unfavourable or adverse.
(vi) Labour Yield Variance: It is similar to material yield variance. It is the difference between
the standard labour output and actual output or yield. It is calculated as below:
Labour Yield Variance = Standard cost per unit × (Standard output for actual time –
Actual output)
OR LYV = SC × (SO for AT – AO)
If the actual production is more than standard production, it would result in a favourable
variance and vice-versa.

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