Page 186 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 9: Variance Analysis

Verifi cation Notes

Labour Cost Variance = Labour Rate Variance + Labour Effi ciency Variance
750 (Adverse) = ` 950 (Adverse) + ` 200 (Favourable)
750 (Adverse) = ` 750 (Adverse)

Solved Problems for Practice

1. You are required to find out the various labour variances from the following data:
Standard hours per unit = 20 Hours
Standard rate per unit = ` 5
Actual production = 1000 units

Actual time taken = 20,400 Hours
Actual rate paid = ` 4. 80
The first step is to find out labour cost variance

= (Standard Hrs for Actual output × Standard Rate) – (Actual Hours × Actual Rate)
To find out the standard hours for actual output, standard hours per unit should be

multiplied with the actual production.
Standard Hrs for actual output = 20 Hrs × 1,000 units= 20,000 Hours
Labour cost variance (LCV)

= (20,000 Hrs × ` 5 per unit) – (20,400 Hrs × ` 4.80)
= ` 1,00,000- ` 97,920
= ` 2,080 (Favourable)
The next step is to determine that labour rate variance
= Actual Hours (Standard Rate – Actual Rate)

= 20,400 Hours (` 5 – ` 4.80) = ` 4,080 (Favourable)
The next stage is to find out the Labour effi ciency variance

= Standard Rate (Standard Hours for Actual Output – Actual Hours)
= ` 5 (20,000 Hours – 20,400 Hours) = ` 2,000 (Adverse)

Verifi cation
Labour cost variance = Labour rate variance + Labour effi ciency variance
` 2,080 (Favourable) = ` 4,080 (Favourable) + ` 2,000 (Adverse)
` 2,080 (Favourable) = ` 2,080 (Favourable)
2. Using the following information, calculate the labour variances:

Gross direct wages = ` 6,000
Standard hours produced = 1,600
Standard rate per hour = ` 3.00
Actual hours paid 1,500 hours, out of which hours not worked (abnormal idle time) are 50.

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