Page 132 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 7: Variance Analysis

Labour Yield Variance Notes

It is considered to be as one of the components of labour efficiency variance. This is a variance in
between two different outputs of the enterprise viz. standard output for actual hours and actual
output.

This is a variance facilitates to study the deviation in between two different levels i.e. how many
number of outputs would be produced during the actual hours and how many number of actual
outputs were produced during the actual hours.

Labour Yield Variance = Standard Cost per unit (Actual Output – Standard Output in Actual
Hours)
OR
= Standard Cost per unit (Actual Yield in Units – Standard Yield in
Actual Hours)
If Actual output or Actual yield in units is greater than the standard yield in actual hours, it
means that the firm’s actual production in units is greater than the standard estimates nothing

but favourable to the business enterprise.

Example: The standard and actual data of a manufacturing concern are given:
Standard time 2,000 Hrs
Standard rate per hour ` 2
Actual time taken 1,900 Hrs

Actual wages paid per hour ` 2.50
Calculate labour variances.
Solution:
First step is to compute the labour cost variance
= (Standard Hrs for Actual Output × Standard Rate) – (Actual Hours × Actual Rate)

= (2,000 Hrs × ` 2) – (1,900 Hrs × ` 2.50)
= ` 4,000 – ` 4,750
= ` 750 (Adverse)
The next step is to find out the labour rate variance

= Actual Hours (Standard Rate – Actual Rate)

= 1,900 Hours (2 – 2.50) = ` 950 (Adverse)
The next variance is to be found out the labour effi ciency variance
= Standard Rate (Standard Hours for Actual Output – Acutal Hours)
= ` 2.00 (2,000 – 1,900) = ` 200 (Favourable)

Verifi cation

Labour Cost Variance = Labour Rate Variance + Labour Effi ciency Variance

750 (Adverse) = ` 950 (Adverse) + ` 200 (Favourable)
750 (Adverse) = ` 750 (Adverse)

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