Page 187 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes The first step is to find out the labour cost variance

= (Standard Hrs for Actual output × Standard Rate) – (Actual Hours × Actual Rate)

To find out the actual rate per hour, the above given information gross direct wages paid
and actual hours paid are to be jointly considered
Gross Direct Wages Paid ` 6,000
Actual rate per hour = =
Actual Hours Paid 1,500 Hours
= ` 4 per hour
= (1,600 Hours × ` 3.00 per hour) – (1,500 Hours × ` 4 per hour)
= ` 4,800 – ` 6,000 = ` 1,200 (Adverse)
The next step is to determine the labour rate variance

= Actual Hours (Standard Rate – Actual Rate)
= 1,500 Hours (` 3 – ` 4)
= ` 1,500 (Adverse)
The next step is to determine the labour effi ciency variance.
= Standard Rate (Standard Time – Actual Time)
Actual hours paid are the total amount of wages paid, which inclusive of the wage payment
given to the employees even for idle time.
Actual time is nothing but the real production time other than the idle time. To study the

efficiency of the labour, only the actual time should be taken into consideration.
= ` 3 (1,600 Hours – 1,450 Hours)
= ` 450 (Favourable)
The next step is to calculate idle time variance
Abnormal idle time x Standard Rate = 50 Hours × ` 3.00
= 150 (Adverse)
Verifi cation

Labour cost variance = Labour Rate Variance + Labour Efficiency Variance + Idle Time

Variance
` 1,200 (Adverse) = ` 1,500 (Adverse) + ` 450 (Favourable) + 150 (Adverse)
` 1,200 (Adverse) = ` 1,200 (Adverse)

3. From the following information, calculate the labour variances:
Standard Actual
Number of men employed 100 90
Output in units 2,500 2,400
Number of working days in a month 20 18
Average wages per man per month ` 200 ` 198
The first step is to determine the standard rate, actual rate, standard time and actual time.

The information given above are not directly connected with required covenants for the
computation of labour variances.

The very first step is to calculate the standard rate per day.

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