Labour Mix Variance:
Exactly analogous to material mix variance is the labour mix variance. It arises when due to shortage of a particular labour grade or some other particular reason; there is a difference between the composition of actual gang of labour & the composition of standard gang. The calculation of the labour mix variance is done in the same manner in which the calculation of material mix variance is done.
The formula, where the total standard
hours & the actual hours are the same, is:
Standard
rate * (Standard hours – Actual hours)
The formula, where the total standard
hours & the actual hours are not the same, is:
Standard
rate * (Revised standard hours – Actual hours)
The actual labour hours divided in
the ratio of standard hours is known as revised standard hours.
Revised Efficiency Variance:
The residue of efficiency variance
which is left after the labour mix variance has been segregated there from represents
revised efficiency variance. Due to actual hours being more or less the number of hours
according to the standard which has been specified for actual output, the variation
in labour cost is highlighted by revised efficiency variance. The calculation is made
in the same manner in which the calculation of revised usage variance of material is
done.
The formula is:
Standard rate
* (Standard hours – Revised standard hours)
Relationship between the variances:
Total Labour cost variance = Rate variance + Efficiency variance + Idle time variance
Efficiency variance = Mix variance + Revised efficiency variance
Illustration 3:
The following information of a manufacturing
concern relating to the labour costs is given:
Standard:
No in the standard gang Skilled
20 Un-skilled
10
Standard wage rate per hour $
3.60 $
3.20
Standard output per gang hour 50
units
Actual:
No in the actual gang Skilled
16 Un-skilled
18
Actual wage rate per hour $
4.00 $
2.00
Actual gang hours paid for 60
Actual output 2400
units
Abnormal idle time 1
gang hour
Calculate the following labour variances:
(a) Cost variance; (b) Rate variance; (c) Total efficiency variance; (d) Idle time
variance;
(e) Mix variance; & (f) Revised efficiency variance.
Solution:
Actual output expressed in standard gang hours = 2400/50 = 48 gang hours
Standard hours of skilled labour 48
* 20 960
hours
Standard hours of un-skilled labour 48
* 10 480 hours
Total 1440 hours
Actual hours of skilled labour 60
* 16 960
hours
Actual hours of un-skilled labour 60
* 18 1080 hours
Total 2040 hours
Idle time 1 gang hour:
Idle time of skilled labour 1
* 16 16
hours
Idle time of un-skilled labour 1
* 18 18 hours
Total 34 hours
Actual hours worked = Actual hours attended – Idle hours
Skilled Labour 960
- 16 944
hours
Un-skilled Labour 1080
- 18 1062 hours
Total 2006 hours
Revised standard hours (actual hours that has been worked expressed in standard ratio):
Skilled Labour (960
/ 1440) * 2006 1337.35
hours
Un-skilled Labour (480
/ 1440) * 2006 668.65 hours
2006.00 hours
Standard Cost for Actual output: $
Skilled Labour 960
hours @ $ 3.60 3456
Un-skilled Labour 480 hours
@ $ 3.20 1536
1440 hours 4992
Actual cost:
Skilled Labour 960
hours @ $ 4.00 3840
Un-skilled Labour 1080 hours
@ $ 2.00 2160
2040 hours 6000
(a) Labour Cost Variance: Standard Cost -* Actual Cost
$
4992 - $ 6000 1008 A
(b) Labour Rate variance: Actual hours attended * (Standard Rate
– Actual
Rate)
Skilled Labour 960
* (3.60 - 4.00) 384 Adverse
Un-skilled Labour 1080 * (3.20 – 2) 1296 Favourable 912
F
(c) Total Efficiency variance: Standard rate * (Standard hours for actual
output – Actual
hours attended)
Skilled Labour $
3.60 * (960 – 960) Nil
Un-skilled Labour $ 3.20 * (480 – 1080) 1920 Adverse 1920 A
Check: Labour Cost Variance = Rate + Efficiency 1008 A
(d) Idle Time variance: Standard rate * Idle time
Skilled Labour $
3.60 * 16 57.6
A
Un-skilled Labour $ 3.20 * 18 57.6 A
115.20
A 115.20
A
(e) Mix Variance: Standard rate * (Revised standard
hours - Actual
hours worked)
Skilled Labour $
3.60 * (1337.35 – 944) 1416.06
F
Un-skilled Labour $ 3.20 * (668.65 – 1062) 1258.72 A 157.34 F
42.14 F
(f) Revised Efficiency Variance: Standard Rate * (Standard hours for Actual output – Revised
Standard hours)
Skilled Labour $
3.60 * (960 – 1337.35) 1358.46
A
Un-skilled Labour $ 3.20 * (480 – 668.65) 603.68 A
1962.14
A 1962.14 A
Check: Total Efficiency Variance = Idle time + Mix +
Revised
efficiency 1920.00 A
Alternative Calculations: $
Actual Labour mix at Standard rates:
Skilled Labour 960
hours @ $ 3.60 3456
Un-skilled Labour 1080 hours
@ $ 3.20 3456
4080 hours 6912
(a) Cost Variance:
Standard cost for Actual output (Refer notes) 4992
Actual cost (Refer notes) 6000
Variance 1008
A 1008 A
(b) Rate Variance:
Actual hours attended at Standard rates 6912
Actual hours attended at Actual rates 6000
Variance 912
F 912
F
(c) Total Efficiency Variance:
Standard cost for Actual output 4992
Actual hours attended at Standard rates 6912
Variance 1920
A 1920 A
Check: Labour Cost Variance = Rate + Efficiency 1008 A
(d) Idle Time Variance:
34 (refer notes) Idle hours at Standard rates of Actual gang (34 * $ 6912) / 2040 115.20 A
(e) Mix Variance:
Actual mix of 2006 (refer notes) hours worked at standard
rates of actual mix = 2006 * ($ 6912 / 1440) 6796.80
Standard mix of 2006 hours worked at standard
rates of standard mix = 2006 * ($ 4992 / 1440) 6954.13
Variance 157.33 F 157.33
F
(f) Revised Efficiency Variance:
Hours Allowed (refer notes) 1440
Actual hours worked (refer notes) 2006
Difference 566
Variance 566 hours at Standard rates of Standard Mix
= 566 * ($ 4992 / 1440) 1962.13 A
Check: Total Efficiency Variance = Idle time + Mix +
Revised
Efficiency 1920.00 A
Note: Refer calculations made under method first.
Second Alternative Calculations:
Standard Cost of Standard Gang per hour: $
Skilled 20
* $ 3.60 72
Un-skilled 10
* $ 3.20 32
104
Actual Cost of Actual Gang per hour:
Skilled 16
* $ 4.00 64
Un-skilled 18
* $ 2.00 36_
100
Standard Cost of Actual Gang per hour:
Skilled 16
* $ 3.60 57.60
Un-skilled 18
* $ 3.20 57.60_
115.20
Actual output expresses in Standard Gang hours = 2400 / 50 = 48 gang hours
(a) Cost Variance:
Standard cost for actual output 48 * $ 104 4992
Actual cost 60
* $ 100 6400
Variance 1008
A 1008 A
(b) Rate Variance:
Actual gang hours at Standard rate of Actual Gang
60
* $ 115.20 6912
Actual gang hours at Actual rate60
* $ 100.00 6000
Variance 912
F 912
F
(c) Total Efficiency Variance:
Standard cost of Actual output 48 *
$ 104 4992
Actual gang hours at Standard rate of Actual Gang
60
* $ 115.20 6912
Variance 1920
A 1920 A
Check: Cost Variance (Refer notes) = Rate + Total Efficiency 1008 A
(d) Idle Time Variance:
Idle hours at Standard rate of Actual Gang
1 * $ 115.20 115.20 A
(e) Mix Variance:
Actual gang hours worked at Standard Rate of
Actual gang 59 * $ 115.20 6796.80
Standard gang of (59 * 68/60) (refer note) hours
at Standard rate of Standard gang 59 * (68 / 60) * $ 104 6954.13
Variance 157.33 157.33 F
(f) Revised Efficiency Variance:
Gang hours allowed 48.00
Actual gang (refer notes) hours as adjusted 59 *
(68 / 60) 66.87
Difference 18.87
Variance 18.87
hours @ $ 104 1962.13 A
Check: Total Efficiency Variance: Idle Time + mix +
Revised
Efficiency 1920.00 A
Note: Total number of workers in the actual gang & standard gang are not the same (66 in the actual gang & 60 in the standard gang). The adjustment is needed for this.
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- Establishment of Standards
- Fixed Overhead Variances
- Labour Variances, Direct Labour Cost Variance
- Material Mix Variance, Material Yield Variance
- Material Variances
- Sales Variances
- Setting of Standards
- Standard Costing- Introduction
- Standard Time Determination, Standard Rate Determination
- Types of Standards
- Variances based on Profit Margin, Total Sales Margin Variance
- Variable Overhead Variances
