llustration 20.

5
Coates India Ltd manufactures aparticular product, the standard direct labour cost of
which is 120per unit, whose manufacture involves the following:
Grade of Hours Rate Amount
workers
A 30 2 60
B 20 3 60
50 120
During aperiod, 100 units of the product were produced, the actual labour cost of
which was as follows:
Grade of Hours Rate Amount
workers
A 3,200 1.50 4,800
B 1,900 4.00 7,600
5,100 12,400
Calculate (a) Labour Cost Variance (b) Labour Rate Variance
(c) Labour Efficiency Variance (d) Labour Mix Variance
20.24 Standard Costing and Variance Analysis

Solution:

During the month of May, the following data applies:

Standard for 100 units Actual for 100 units
Grade of Hours Rate Amt Hours Rate Amt
worker

2 6,000 3,200 1.50 4,800

A 3,000 4.00 7,600
6,000 1.900
B 2,000
12,000 5,100 12,400
Total 5,000

(a) Labour Cost Variance = SC- AC

LCV = 12,000 - 12,400 400 (A)

(b) Labour Rate Variance = (SR - AR) × AH

A =(2- 1.50) x 3,200 = 1,600 (F)
B = (3 - 4.00) × 1,900 =1,900 (A)
LRV = 300 (A)

(c) Labour Efficiency Variance = (SH- AH) x SR

A = (3,000- 3,200) x 2 Z400 (A)
B = (2,000- 1,900) x 3 300 (F)
LEV = 100 (A)

Check: LCV = LRV + LEV

400 (A) =300(A) + 100(A)
(a) Labour Mix Variance = (RSH*-AH) x SR
A =(3,060 - 3,200) x 2 7280 (A)
B = (2,040 - 1,900) x 3 =
420(F)
LMV= 140 (F)
*Calculation of Revised Standard Hours (RSH)
RSH =
Std hours of the grade x Total actual hours
Totalstd hours
3,000 2,000
Grade A = x 5,100 = 3,060 hrs Grade B= x 5,100 = 2,040 hrs
5,000 5,000

(c) Labour Revised Efficiency Variance (Or Labour Sub-efficiency Variance) This is similar
to Material Revised Usage Variance and is a sub-variance of labour efficiency variance. lt
arises due to factors other than those which give rise to idle time variance and labour mX
variance. Thus, this is a residue of labour efficiency variance left after idle time and mix
variance have been separated. Its formula is:
Labour Revised Efficiency Variance = Std hours for Revised x Std rate
actual output stdhours)
LREV = (SH - RSH) × SH
illustration 20.7
The standard labour employment and the actual labour engaged in a week for a job are
as under:
Skilled Semi-skilled Unskilled
workers workers workers
Standard no. of workers in the gang 32 12 6

Actual no. of workers employed 28 18 4

3 2 1
Standard wage rate per hour
4 3 2
Actual wage rate per hour
During the 40 hours working week, the gang produced 1,800 standard labour hours
of work. Calculate:
(a) Labour Cost Variance (b) Labour Rate Variance
 (d) Labour Mix Variance
(c) Labour Efficierncy Variance
(e) Labour Yield Variance (CA Inter)

Solution:
Actual
Standard
Rate Amount Hrs* Rate Amount
Hrs*
Category
of workers
3,840 1,120 4 4,480
Skilled 1,280 3
2 960 720 3 2,160
Semi-skilled 480
240 160 2 320
240 1
Unskilled
5,040 2,000 6,960
2,000
*Hrs = No. of workers x 40 hours.

75,040 x 1,800 hrs =4,536

Std cost of actual output =
2,000 hrs
Labour Cost Variance = Std cost of actual output - Actual cost
LCV =R4,536 6,960 =2,424 (A)
Labour Rate Variance = (SR - AR) × AH
Skilled = (3 4) x 1,120 =1,120(A)
Semi-skilled = (2-3) x 720 = 720 (A)
unskilled = (1-2) x 160 160 (A)
LRV =2,000 (A)
Labour Efficiency Variance= (*SH for actual output - AH) x SR
Skilled = (1,152 -1,120) x 3 796 (F)
Semi-skilled = (432- 720) x2 = 576 (A)
Unskilled = (216 -260) x1 56 (F)
LEV = 424 (A)
*Std hrs for actual output are calculated as follows:
1,800
Skilled x 1,280 = 1,152 hrs
2,000
1800
Semi-skilled x 480 = 432 h°s
2,000
1,800
Unskilled x 240 = 216 hrs
2,000
Labour Mix Variance = (Revised std hrs - AH) x SR
Skilled = (1,280-1,120) x3 = 480 (F)
Semi-skilled = (480 - 720) >x 2 = 480 (A)
Unskilled = (240 - 160) × 1 780 (F)
LMV = . 80 (F)
Labour Yield Variance
|Actual Std output for) x *Stdrate per hour of work
output actual hours
5,040
LYV = (1,800 - 2,000) x =7504 (A)
2,000
Check:
LCV2,425 (A)

LAV 2,000 (A) LEV 424 (A)

LYV
LMV
Z80 (F) 75.04 (A)