Page 188 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 9: Variance Analysis

Standard wages per man per month = ` 200 Notes

Standard number of working days in a month = ` 20
` 200
Standard wage rate per day =
20
= ` 10

The next step is to find out the actual wage rate per day.

Standard wages per man per month = ` 200
Actual wages per man per month= ` 198
Actual number of working days in a month = ` 18
` 198
Actual wage rate per day =
18
= ` 11
Standard man days in a month = Standard Number of men employed × standard number of
working days in a month
= 100 × 20 days in a month = 2000 mandays in a month
The standard man days in a month are calculated only for the standard output in units, which

amounted ` 2,500. The calculated figure should be converted into actual units of production
i.e. 2400, in order to have meaningful comparison, between standard and actual.
In a nutshell, standard man days in a month for actual output should be computed.

2000
= × 2,400 = 1,920
2,500
Actual man days in a month = Actual number of men employed × actual number of
working days in a month
= 90 × 18 days in a month = 1,620 mandays in a month
First Variance to be Computed is Labour Cost Variance
= (Standard Days for Actual output × Standard Rate) – (Actual Days × Actual Rate)

= (1,920 days × ` 10 per day) – (1,620 days × ` 11 per day)
= ` 19,200 – ` 17,820 = ` 1,380 (Favourable)
The next step is to find out the labour rate variance

= Actual Days (Standard Rate – Actual Rate)
= 1,620 days (` 10 – ` 11) = ` 1,620 (Adverse)

The next step is to determine the labour effi ciency variance
= Standard Rate (Standard days for actual output – Actual days)
= ` 10(1,920 – 1,620) = ` 3,000(Favourable)
Verifi cation

Labour cost variance = Labour rate variance +Labour effi ciency variance
` 1,380 (Favourable) = ` 1,620 (Adverse) + ` 3,000(Favourable)

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