Page 185 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes Men ` .80
Women ` .60

Boys ` .40
In a normal working week of 40 hours, the group is expected to produce 2,000 units of output.
During the week ended 31st December 2007, the group consisted of 40 men, 10 women and
5 boys. The actual wages paid were @` 70, ` 65 and ` 30 respectively. 4 hours were lost due to
abnormal idle time and 1,600 units were produced.
Calculate labour yield variance.
Solution:
Labour yield variance = Standard cost per unit (Actual output – Standard output for Actual
Hours)
Standard cost per unit should be found out initially, which is as follows:
Standard cost of the units ` 1,480
= = = .74
,
Standard output 2 000 unitts
Standard output
Standard output for actual hours = × Actual Effective hours
Standard Hours
2,000 Units
= × 1,980Hrs = 1,800 units
2,200 Hrs
= .74 (1,600 units – 1,800 units) = 148 (Adverse)

The actual yield in units is less than the standard means that it is not favourable for the fi rm.

Example: The standard and actual data of a manufacturing concern are given:
Standard time 2,000 Hrs
Standard rate per hour ` 2

Actual time taken 1,900 Hrs
Actual wages paid per hour ` 2.50
Calculate labour variances.
Solution:
First step is to compute the labour cost variance
= (Standard Hrs for Actual Output × Standard Rate) – (Actual Hours × Actual Rate)
= (2,000 Hrs × ` 2) – (1,900 Hrs × ` 2.50)

= ` 4,000 – ` 4,750
= ` 750 (Adverse)
The next step is to find out the labour rate variance

= Actual Hours (Standard Rate – Actual Rate)
= 1,900 Hours (2 – 2.50) = ` 950 (Adverse)
The next variance is to be found out the labour effi ciency variance

= Standard Rate (Standard Hours for Actual Output – Acutal Hours)
= ` 2.00 (2,000 – 1,900) = ` 200 (Favourable)

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