Page 183 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes Labour Mix Variance

This variance arises due to deviations in between the actual mixture of labour force for the job
and standard mixture of labour force planned to complete the job. The mixture of work force
is considered to be most important for completion. Normally, the mixture is in tri colours viz.
Skilled, Semi-Skilled and Unskilled. The standards are prepared by considering the requirements
of the job to be completed. For completing the job, 5 skilled, 3 semi-skilled and 2 unskilled
employees are required. Due to non-availability of skilled labour force, the firm is required to

carry out the operations without any lacuna through the induction of more semi-skilled labour
force. The actual composition of the labour force is 2 skilled, 6 semi-skilled and 2 unskilled which

finally led to labour mix variance.
Reasons for the labour mix variance:
1. Absenteeism
2. Labour turnover
3. Non-availability of required labour force from the business environment.

The above critical factors directly influence the efficiency of the labour force.

Labour Mix Variance = Standard Rate (Revised Standard Hours – Actual Hours)
Standard hours for the job were determined for the Standard mixture of labour force but these
hours are not denominated to the tune of actual hours taken by the actual mixture of labours
force. To study the variance in between them, the standard hours should be in line with the
actual. The standard hours which are converted to the tune of actual hours is known as Revised
standard hours considered to be level platform for an effective comparison.
Labour Mix Variance = Standard Rate (Revised Standard Hours – Actual Hours)

Example: From the following data, calculate labour mix variance:
Standard Actual
Hours Rate Hours Rate

Skilled labour 10 3.00 9,000 4.00
Semi-skilled 8 1.50 8,400 1.50
Unskilled 16 1.00 20,000 0.90
The actual production was 1000 articles.

Solution:
Labour Mix Variance = Standard Rate (Revised Standard Hours – Actual Hours)
Standard Hours
Revised Standard Hours (RSH) = × Total Actual Hours
Total Standard Hours
Total standard hours = 10,000 + 8000 + 16,000 = 34,000
Total actual hours= 9000 + 8,400 + 20,000 = 37,400

10,000
RSH: Skilled = × 37,400 = 11,000 hrs
34,000
8,000
Semi-Skilled = × 37,400 = 8,800 hrs
34,000

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