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Unit 7: Variance Analysis
the goldsmith to take more special care in the design of an ornament than the regular or Notes
routine design. This leads to involvement of more amount of skilled labour, which fi nally
escalates/increases the cost of the labour.
3. To fulfill the immediate and excessive orders of the consumers which are to be supplied to
their requirements leads to greater payment of wages through over time charges; which is
normally greater than the regular wage rate.
4. This variance mainly occurs in the industry, which is connected with seasonal business.
This variance mainly plays pivotal role in the industries of soft drinks, fans, refrigerator,
fertilizer, crackers and so on.
The Labour Rate Variance (LRV) = Actual hours taken (Standard Rate – Actual Rate)
Labour Effi ciency Variance
The efficiency of the labour is denominated only in actual hours for actual output, which should
be less than the standard hours expected to perform during the job. The labour effi ciency variance
is the deviation in between two standard hours for actual output and actual hours taken for
actual output. The expression of variance in terms of hours should be expressed in terms of wage
rate, i.e. standard wage rate.
Why the expression should be in the standard wage rate?
The aim of expressing Efficiency variance in terms of standard wage is to express them in
monetary units and should be free from the demand and supply forces of the labour force which
directly has an impact on the basic labour wage rate
Labour Efficiency Variance = Standard Rate (Standard Hours for Actual Output – Actual Hours
for Actual Output)
What are causes of this variance?
1. Due to poor working conditions, the efficiency of the working force to complete the job is
coming down.
2. Quality of maintenance of the machinery is facilitating the working force to maintain the
effi ciency.
3. Frequent change in the quality of materials may lead change in the hours required to
complete the work.
4. Poor personnel relations of the workers.
Idle Time Variance
The wages which are paid for unproductive hours to the labourers are known as idle time.
The idle time may be classified into two categories:
1. Normal idle time
2. Abnormal idle time
What is normal idle time?
This idle time is known as authorised idle time, which can be understood in other words as
unavoidable idle time. Normally the worker is paid for that time during which he does not
produce anything.
LOVELY PROFESSIONAL UNIVERSITY 125
