A gang of workers normally consists of 30 men, 15 women and 10 boys. They are paid at standard hourly rates as under :
Men | Re. 0.80 |
Women | Re. 0.60 |
Boys | Re. 0.40 |
In a normal working week of 40 hours, the gang is expected to produce 2000 units of output.
During the week ended 31st December 2017, the gang consists of 40 men, 10 women and 5 boys. The actual wages paid were @ Rs. 0. 70, Rs. 0.65 and Rs. 0.30 respectively. 4 hours were lost due to abnormal idle time, and 1,600 units were produced.
Calculate all the Labour Variances.
Solution
Workers | Standard | Actual | ||||
Hours | Rate (Re.) | Total (Rs.) | Hours | Rate (Re.) | Total (Rs.) | |
Men | 1,200 (30 x 40) | 0.80 | 960 | 1,600 (40 x 40) | 0.70 | 1,120 |
Women | 600 (15 x 40) | 0.60 | 360 | 400 (10 x 40) | 0.65 | 260 |
Boys | 400 (10 x 40) | 0.40 | 160 | 200 (5 x 40) | 0.30 | 60 |
2,200 | 1,480 | 2,200 | 1,440 |
(a) Labour Rate Variance= (SR - AR) x Actual Time
Men : (0.80 - 0.70) x 1,600 Hrs. = Rs. 160 (F)
Women : (0.60 - 0.65) x 400 Hrs. = Rs. 20 (A)
Boys : (0.40 - 0.30) x 200 Hrs. = Rs. 20 (F)
Rs. 160 (F)
(b) Total Labour Efficiency Variance((*)(1) Std. Hrs. for Act. output - Act. Hrs. Paid) x SR
Men : (960 Hours - 1,600 Hours) x Re. 0.80= Rs. 512 (A)
Women : (480 Hours - 400 Hours) x Re. 0.60 = Rs. 48 (F)
Boys : (320 Hours - 200 Hours) x Re. 0.40 = Rs. 48 (F)
Rs. 416 (A)
(c) Labour Cost Variance = ((*)(2) Std. Cost for Actual Output - Actual Cost)
= Rs. 1,184 - Rs. 1,440
= Rs. 256(A)
(d) Now Total Labour Efficiency Variance may be segregated into (i) Labour Efficiency Variance and (ii) Idle Time Variance.
(i) Labour Efficiency Variance (After segregating Idle Time Variance) =((*)(3) Std. Time for Act. Output - (*)(3)Actual Time Taken) x SR
Men : (960 - 1,440) x 0.80 = Rs. 384 (A)
Women : (480 - 360) x 0.60 = Rs. 72 (F)
Boys : (320 - 180) x 0.40 = Rs. 56 (F)
Rs. 256 (A)
(ii) Idle Time Variance = Std. Rate per Hour x Idle Hours
Men : Re. 0.80 x 160 = Rs 128
Women : Re. 0.60 x 40 = Rs. 24
Boys : Re. 0.40 x 20 = Rs. 8
Rs. 160 (A)
(e) Labour Efficiency Variance may further be segregated into: (i) Mix Variance and (ii) Yield Variance
(i) Mix Variance = ((*)(Working Note No. 4) Revised Standard Time - Actual Time) x SR
Men : (1,080 Hrs. - 1,440 Hrs.) x Re. 0.80 = Rs. 288 (A)
Women : (540 Hrs. - 360 Hrs.) x Re. 0.60 = Rs. 108 (F)
Boys : (360 Hrs. - 180 Hrs.) x Re. 0.40 = Rs. 72 (F)
Rs. 108 (A)
(ii) Yield Variance = (Std. Output for Actual Time Worked - Actual Output) x Standard Cost Per Unit
= (1,800 - 1,600) x Rs. 0.74
= Rs. 148 (A)
Working Notes :
(*) (1) Standard Hours for Actual Output:
Men : 2,000 Units - 1,200 Hours
∴ 1,600 Units - ?
`(1,600 xx 1,200)/(2,000)` = 960 Hrs.
Women : 2,000 Units - 600 Hours
∴ 1,600 Units-?
`(1,600 xx 600)/(2,000 )`= 480 Hrs.
Boys : 2,000 Units - 400 Hours
∴ 1,600 Units - ?
`(1,600 xx 400)/(2,000)` = 320 Hrs.
(*) (2) Standard Cost for Actual Output :
For 2,000 Units - Cost Rs. 1480
For 1,600 Units - ?
`(1,600 xx 1,480)/(2,000)` = Rs. 1,184
(*) (3) Standard Time for Actual Output :
Standard Hrs. - Idle Hrs. Actual Hrs. - Idle Hrs.
Men : 1,200 - 240 = 960 Hrs. 1,600 - 160 = 1,440 Hrs.
Women : 600 - 120 = 480 Hrs. 400 - 40 = 360 Hrs.
Boys : 400 - 80 = 320 Hrs. 200 - 20 = 180 Hrs.
(*) (4) Revised Standard Time :
Men : For 2,200 Hrs. - 1,200 Hrs.
For 1,980 Hrs. - ?
`(1,980 xx 1,200)/(2,200)`= 1,080 Hrs.
Women : For 2,200 Hrs. - 600 Hrs.
For 1,980 Hrs. - ?
`(1,980 xx 600)/(2,200)`= 540 Hrs.
Boys : For 2,200 Hrs. - 400 Hrs.
For 1,980 Hrs. - ?
`(1,980 xx 400)/(2,200)`= 360 Hrs.
These 1,980 Hrs. comes as follows :
Total Actual Hours = 2,200
(-) Total Idle Hours (160 + 40 + 20) = 220
= 1,980