Management Accounting

BBA III SEMESTER

By Asim Kumar Sahore
 Labour variance:
The following are the
variances in the case of
labour
The formula is:
Labour Cost Variance (or) LCV:
Labour Cost Variance = (Standard
Time x Standard Rate) - (Actual Time
x Actual Rate)

FOR AO
The formula is:
Labour Rate Variance =
Actual Time (Standard Rate -
Actual Rate)
 Labour Efficiency Variance =
Standard Rate (Standard Time-
Actual Time)

FOR AO
With the help of following
information calculate
(a) Labour Cost Variance
(b) (b) Labour Rate Variance
(c) Labour Efficiency Variance
Standard hours: 40@ Rs. 3 per hour
Actual hours: 50@ Rs. 4 per hour
Products Standard Standard Actual Actual
Hours Rate Hours Rate
40 3 50 4
 SOLUTION
Products Standard Standard Actual Actual
Hours Rate Hours Rate
40 3 50 4

TOTAL 40 50
STANDARD INPUT ACTUAL INPUT

SO = 1 AO = 1
The formula is:
Labour Cost Variance (or) LCV:
Labour Cost Variance = (Standard
Time x Standard Rate) - (Actual Time
x Actual Rate)

FOR AO
SH SR SH X AH AR AH X AR
SR
40 3 120 50 4 200
The formula is:
Labour Cost Variance (or) LCV:
Labour Cost Variance = (Standard
Time x Standard Rate) - (Actual Time
x Actual Rate)

FOR AO

= 120-200= 80 (A)
Labour Rate Variance =
Actual Time (Standard Rate -
Actual Rate)
SR AR SR-AR AH (SR – AR) x
AH
3 4 1 50 50 (A)
 Labour Efficiency Variance =
Standard Rate (Standard Time-
Actual Time)

FOR AO
Labour Efficiency Variance =
Standard Rate (Standard
Time-Actual Time)
ST AT ST-AT SR (ST – AT) x
SR
40 50 10 3 30 (A)
 Solution:
LCV = LRV + LEV
80 (A) = 50 (A) + 30 (A)
Q2. The Labour budget of a company for a week is as
follows:
20 skilled men @ 50 paise per hour for 40 hours =400
40 unskilled men @ 30 paise per hour for 40 hours =480
……..
880
……..
The actual labour force was used as follows:
30 skilled men @ 50 paise per hour for 40 hours` =600
30 unskilled men @ 35 paise per hour for 40 hours =420
…….
1,020
1. Labour Rate Variance = AT (SR - AR)
(a) Skilled men = 1,200 (Rs.50 - Rs.50)
=0
(b) Unskilled men = 1,200 (Rs.30 -
Rs.35) = Rs.60 (A)
2. Labour Mix variance = SR (ST - AT)
(a) Skilled men = Rs.0.50 (800 -1200)
= Rs.200 (A)
(b) Unskilled men = Rs.0.30 (1600 -
1200) = Rs.120 (F)
Total Labour Cost Variance =
Standard labour cost - Actual
cost
= 880-1020 = 140 (A)
EX. Standard labour hours
and rate for production of
Article A are given below:
 Hrs. Rate (Rs.) Total (Rs)

Skilled worker 5 1.50 per hour 7.50

Unskilled worker 8 0.50 per hour 4.00
Semi-skilled worker 4 0.75 per hour 3.00
Actual data Rate per hour Total
Articles produced 1,000 units

Hrs. Rate (Rs.) Total (Rs)

Skilled worker 4,500 hrs 2.00 9,000
Unskilled worker 10,000 hrs 0.45 4,500
Semi skilled worker 4,200 hrs 0.75 3,150
Calculate: Labour Cost Variance,
Labour Rate Variance, Labour
Efficiency Variance and Labour
Mix Variance
(a) Labour Cost Variance
= (Standard Time x Standard Rate) -
(Actual Time x Actual Rate)
Standard Time for Actual Production
=Actual Units x ST.
Skilled Worker = 1,000 x 5 = 5000 Hrs.
Unskilled worker = 1,000 x 8 = 8,000 Hrs.
Semi-skilled worker= 1,000 x 4 = 4,000
Hrs.
 ST SR ST X AT AR AT X AR
SR
Skilled 5000 1.5 7500 4500 2 9000
Semi- 8000 0.5 4000 10000 0.45 4500
skilled
Unskilled 4000 .75 3000 4200 0.75 3150
17000 14500 18700 16650
STANDARD INPUT ACTUAL INPUT

SO = 1000 AO = 1000
 Total Labour Cost
Variance = Rs.2150 (A)
(b) Labour Rate
Variance = Actual Time
(Standard Rate - Actual
Rate)
 Labour Rate Variance =
Actual Time (Standard Rate -
Actual Rate)
SR AR SR-AR AH (SR –
AR) x AH
Skilled 1.5 2 0.50 4500 2250 (A)
Semi-skilled 0.5 0.45 0.05 10000 500 (F)
Unskilled 0.75 0.75 0 4200 0
LRV= 1,750 (A)
The formula is:
Labour Efficiency Variance =
Standard Rate (Standard
Hours - Actual Hours)

FOR AO (STD
HOURS OF
WORK)
 Labour Efficiency Variance =
Standard Rate (Standard Time-
Actual Time)

FOR AO
Labour Efficiency Variance =
Standard Rate (Standard
Time-Actual Time)
ST AT ST-AT SR (ST – AT) x
SR
5000 4500 500 1.5 750 (F)
8000 10000 2000 0.5 1000 (A)
4000 4200 200 .75 150 (A)
17000 18700
400 (A)
 Solution:
LCV = LRV + LEV
2150 (A) = 1750 (A) +
400 (A)
 (c) Labour mix
variance: = SR (Revised
std. Mix (of Actual hours worked)
– Actual Mix)
 Revised std. Mix of
Actual hours worked
Std Mix
=……………………… x Total Actual Hrs.
Total Std. Hours
 Skilled worker =
5,000
…………… x 18,700 =
17,000
=5,500 Hrs
 8,000
Unskilled worker =………… x 18,700 = 8,800 Hrs.
17,000

4,000
Semi skilled worker =………… x 18,700 = 4,400 Hrs
17,000
 Labour Mix Variance =
Standard Rate (Revised
Standard Time-Actual Time)
RST AT RST- SR (RST – AT)
AT x SR
Skilled 5500 4500 1000 1.5
1500 (F)
Semi-skilled 8800 10000 1200 0.5 600 (A)
Unskilled 4400 4200 200 0.75 150 (F)

LMV= 1050 (F)

 Labour Yield Variance
= Standard labour cost per unit (AO - SO)

for actual
input

Standard labour cost per unit= SR X SH

SO
 Material Yield Variance
= (1000 – 1100) X 14.50
= 1450 (A)

Standard cost per unit= 14,500

1000
= 14.50
 LEV = LMV + LYV
400 (A)= 1050 (F) + 1450 (A)
Q3. The standard labour component and the actual labour
component engaged during the month are given below:
Skilled Semi-skilled Unskilled
(a) Standard number of
workers in a group 30 10 10
(b) Standard wage rate
(Rupees per hour) 20 12 8
(c) Actual number of workers employed during the month in the
group 24 15 12
(d) Actual wage rate per hour 24 10 8

During the month of 200 working hours, the group

produced 9,600 standard hours of work.
You are required to calculate:
(i) Wage rate variance; (ii) Labour efficiency variance; (iii)
Labour mix variance and (iv) Total labour cost variance.
 ST SR ST X SR AT AR AT X AR
Skilled 6000 20 120000 4800 24 115200
Semi- 2000 12 24000 3000 10 30000
skilled
Unskilled 2000 8 16000 2400 8 19200
10000 10200
 ST SR ST X SR AT AR AT X AR
Skilled 6000 20 120000 4800 24 115200
Semi- 2000 12 24000 3000 10 30000
skilled
Unskilled 2000 8 16000 2400 8 19200
10000 160,000 10200 164,400

SO AO
10000 9600
The formula is:
Labour Cost Variance (or) LCV:
Labour Cost Variance = (Standard
Time x Standard Rate) - (Actual Time
x Actual Rate)

FOR AO
 ST SR ST X SR AT AR AT X AR
Skilled 4800
Semi- 3000
skilled
Unskilled 2400
10200

SO AO
9600 9600
 ST SR ST X SR AT AR AT X AR
Skilled 5760 20 115200 4800 24 115200
Semi- 1920 12 23040 3000 10 30000
skilled
Unskilled 1920 8 15360 2400 8 19200
9600 153600 10200 164,400
SO AO
9600 9600
The formula is:
Labour Cost Variance (or) LCV:
Labour Cost Variance = (Standard
Time x Standard Rate) - (Actual Time
x Actual Rate)

FOR AO (STD HOURS OF WORK)

Labour Cost Variance = Standard
Cost for Actual Output – Actual Cost
= ` 1,53,600 – 1,64,400 =
` 10,800 (A)
The formula is:
Labour Rate Variance =
Actual Time (Standard Rate -
Actual Rate)
 Labour Rate Variance =
Actual Time (Standard Rate -
Actual Rate)
SR AR SR- AH (SR – AR) x
AR AH
Skilled 20 24 4 4800 19200 (A)
Semi-skilled 12 10 2 3000 6000 (F)
Unskilled 8 8 0 2400 0
LRV= 13,200 (A)
The formula is:
Labour Efficiency Variance =
Standard Rate (Standard
Hours - Actual Hours)

FOR AO (STD
HOURS OF
WORK)
 Labour Efficiency Variance =
Standard Rate (Standard
Time-Actual Time)
ST AT ST- SR
(ST – AT)
AT x SR
Skilled 5760 4800 960 20 19200 (F)
Semi-skilled 1920 3000 1080 12 12960 (A)
Unskilled 1920 2400 480 8 3840 (A)

LEV= 2400 (F)

 Solution:
LCV = LRV + LEV

10,800 (A) =13,200 (A)

+ 2400 (F)
Labour Mix Variance = Standard Rate
(Revised Standard Hours – Actual Hours)

FOR Actual
input/ total
actual time)

Labour Mix Variance = Standard Price

(Revised std hours-Actual hours)
LMV= SP (RST – AT)
 Labour Mix Variance =
Standard Rate (Revised std
hours-Actual hours)
RST AT RST- SR (RST – AT)
AT x SR
Skilled
Semi-skilled
Unskilled
Revised standard hours have been calculated as
under:
Revised Standard Hours =
Standard Hrs. × Total Actual Hours
Total Standard Hrs.
Skilled = 10,200/10,000 × 6,000 = 6,120
hours
Semi-skilled = 10,200/10,000 × 2,000 =
2,040 hours
Unskilled = 10,200/10,000 × 2,000 = 2,040
hours
 Labour Mix Variance =
Standard Rate (Revised std
hours-Actual hours)
RST AT RST- SR (RST – AT)
AT x SR
Skilled 6120 4800 1320 20 26400 (F)
Semi-skilled 2040 3000 960 12 11520 (A)
Unskilled 2040 2400 360 8 2880 (A)

LMV= 12000 (F)

 Labour Yield Variance
= Standard labour cost per unit (AO - SO)

for actual
input

Standard labour cost per unit= SR X SH

SO
 Material Yield Variance
= (9600 – 10200) X 16
= 9600 (A)

Standard cost per unit= 160,000

10000
= 16
 Solution:
LEV = LMV + LYV
2400 (F) = 12000 (F) +
9600 (A)