UNIT III - STANDARD COSTING

CHAPTER : I
Note: The study material is not exhaustive. These are only guidance. The examples given are issued to save time in
dictation. Student’s arc required to refer to reference books

Introduction :
Cost control is one of the objectives of cost management. Management of an organisation setups
predetermined cost to compare the actual cost with the predetermined cost. Predetermined costs are standard
costs used for cost control and performance evaluation. Historical Costing or Actual Costing is a system
where costs are ascertained after they are incurred. Historical costing does not help in finding mistakes and
inefficiencies, which all lead to variation in profit. Due to these disadvantages and limitations the standard
costing technique was developed.

Standard cost seeks to establish the cost of a product, operations or process under standard operating
conditions. The aim of standard cost is to eliminate the influence of abnormal changes in prices. It is used as a
guide for future decision and action over a period of time. Standard costing is an effective management tool
for planning, control of business and decision making. It is a technique of cost control.

Definition:
Standard Cost :
Standard costs are pre-determined cost or costs determined in advance. The I.C.M.A. (Institute of Certified
Management Accountants) London, defines standard cost as “ A pre-determined cost based on a technical
estimates for material, labour and overheads for a selected period of time and for a prescribed set of working
conditions”

A standard cost is a unit base figure which represents an amount that can be taken as a typical of the cost of an
article or service. It is a cost per unit that the firm should try to achieve if the result of operations is to be
desired. It is established on the basis of planned operations, plant cost efficiency levels and expected ca Atcitty
utilization.

Standard Costing:
Standard costing is a technique of costing which compares the pre-determined cost of a product with the actual
cost. Standard costing involves the preparation of standard costs and applying them to measure the
variations from actual costs and analysing the causes of variations with a view to maintain-maximum
efficiency in production.

The Official Terminology of I.C.M.A. London defines standard costing as “Control technique that reports
variances by comparing actual costs to pre-set standards so facilitating action through management by
exception.”

According to CIMA (Chartered Institute of Management Accountants), "Standard Costing is the preparation
and use of standard costs, their comparison with actual costs and the analysis of variances to their causes and
points of incidence." On the basis of above definition, the steps involved in the techniques of standard
costing are as follows:

Step 1 -> Fixation of realistic (i.e attainable) standards for each element of cost, i.e. material,

Step 2 -> Comparison of the actual cost with the standard cost and find out the difference between
the two known as variance. A variance which increases profit is called favourable and which
decreases profit is called unfavourable or adverse.

Step 3 -> Analysis of variances to ascertain the reasons for the variances.

Step 4 -> Presentation of information to the appropriate level of management to decide upon

the corrective action to be taken.

Advantages of standard costing are as follows:
Facilitates Planning
Involves Standard careful costing analysis facilitates and planning scrutiny since of different
setting activities up standard of a business.
Facilitates Effective Delegation of authority :
Delegation of Authority becomes effective since the people concerned know what they have to
achieve and by what standard they will judged.
Facilitates Cost Control
Standard Costs facilitates cost control by –
o revealing exact degree of efficiency in various operations through comparison of actual figures with
standard figures.
o revealing exact causes of deviation of actual figures from standard figures through variance
analysis.
Facilitates Motivation
Standard costing facilitates motivation through standards which provide incentive and motivation to attain
standard output of standard quality. Workers who attain standard output may be rewarded. This increases
efficiency and productivity.
Facilitates Objective Measurement of Performance
Right person can be rewarded & promoted since performance can be judged objectively.
Facilitates Coordination
Standard costing facilitates co-ordination between different functions by bringing different functions such
as purchasing, production, selling, accounting together while fixing standards.
Facilitates the use of MBE Principle
Standard costing facilitates the use of management by Exception principle since the management need to
concentrate only on the areas and problems which require its attention through study of variance analysis.
Facilitates the Formulation of Pricing Policies
Standard costing facilities the formulation of pricing policies for prospective order
Facilitates the Formulation of Production Policies
Standard costing facilitates the formulation of production policies for various products by providing
predetermined costs of each element of cost on the basis of engineering specifications.
Facilitates Cost Reporting
Standard costing through variance analysis provides a ready means of interpretation of information for the
management for the purpose of control and decision making. Ready reporting enhances the value of
reports.
Reveals the areas of avoidable wastages & losses, idle capacity
Standard Costing through variance analysis reveals the areas of avoidable wastages & losses and idle
capacity.
Facilitates Cost Audit
Standard Costing facilitates cost audit since if variances are satisfactorily explained, the accuracy of costing
can be safely assumed.
Provides Economical means of costing
Standard costing provides economical means of costing in the sense that once the standards have been
fixed some records can be kept in quantities only. This eliminates much clerical effort in pricing and
balancing items on stock ledger card. The standard cost of goods produced can be calculated immediately
just by multiplying the quantity by the unit standard cost.
Provides Uniform Valuation of Inventory
Standard costing provides uniform valuation of inventory by valuing inventory of raw-materials,
work-in-progress and finished goods at standard costs and by transferring the difference between actual and
standard cost to a variance account.
Provides Forward Looking Approach
By adoption of standard costing system, the whole concern is imbued with a dynamic forward looking
mentality.
Provides Objective Measurement of Operational Efficiency
Standard costing through setting of standards, enables to measure the operational efficiency of workers and
other materials of the staff objectively against those standards.
Creates Cost Consciousness
 Standard costing creates cost consciousness among executives which increases efficiency and productivity.
Limitation given below :
Setting of Accurate Standards
It is difficult to fix accurate standard costs. Standards may be either too strict or too liberal. Inaccurarte
and unreliable standards do more harm than benefits
Revision of Standards
Standards require revision because business conditions constantly keep on charging. Revision of
standards is costly and some firms ignore it.
Adverse Effect on Morale & Motivation
Non-achievement of unrealistic standards may have an adverse effect on the morale and motivation
of the employees
Unsuitability
Standard costing system is costly and unsuitable in job-order industries where the production is of
a non- repetitive nature.
Expensive
In case of small concerns it is expensive to operate standard costing system.
Duplication
Where the system has not yet been fully accepted, there is duplication in recording in as much as
inventory pricing etc. have to be done both at standard and actual price.
Difficulty in Setting Standards
Sometimes it becomes difficult to set up standard costs in view of the uncertain economic
conditions, great fluctuations in prices.
Non Facilitate Cost Reduction
Standard costing facilitates only cost control and not cost reduction.
Variance Analysis:
The key to a standard cost system is the variance analysis. A variance is the difference between
actual performance and the standard performance, in relation to costs, variance refers to the
difference between actual cost and standard cost of each element of cost viz., materials, labour and
overheads.
In situations where actual costs exceed standard costs, the difference is called adverse or
unfavourable or negative variance. It is the result of inefficient or substandard performance for
which the firm did not receive the full value of the assets expanded, in case where an actual
cost is less than the standard cost, the difference is called favourable or positive variance. The
identification of variance as favourable or unfavourable depends on its effect on profit of the firm. If
variance has positive effect on profit, it is identified as favourable variance and if it has negative
effect, it is identified as unfavourable variance.

A favourable variance is designated as (F) and an unfavourable variance is designated as (UF)

or Adverse (A)

The standards in respect of each element of costs are determined with regard to price and
quantity. This gives rise basically to two types of variances; (l) Price Variance and (2) Quantity
or Usage or Efficiency Variance. Several other variances may, however, also be computed for
specific purposes.Classification of variance

Variance

Cost variance Income variance

MATERIAL COST VARIANCE (TOTAL) :(MCV)
Meaning Material Cost Variance (MCV) is the difference between the Standard Cost of Direct Materials
specified for the output achieved and the Actual Cost of Direct Materials consumed.
How to Calculate Material Cost Variance (MCV) is calculated as follows:
MCV = Standard Cost of Standard Quantity of Materials for Actual Output
minus
Actual Cost of Actual Quantity of Materials consumed for Actual Output

Or
= (Standard Quantity for Actual Output x Standard Price) - (Actual Quantity x Actual Price)
Or
= (SQ X SP) - (AQ X AP)
Note: Standard Quantity of Material for Actual Output is calculated as follows:
= Standard Qty of Material x Actual Output
Standard Output
or = Standard Qty of Material required per unit x Actual Output.
(a) Favourable (F) if the effect of the variance is to increase the profit (i.e. where actual cost is less than the
standard cost.)
(b) Adverse (A) if the effect of the variance is to decrease the profit (i.e.where actual cost is more than the
standard cost.)
 MCV may arise due to:
o change in price of material, or
o change in quantity of material, or
o change in price and quantity of material
MCV may be further divided into:
(a) Material Price Variance (MPV), and
(b) Material Usage Variance (MUV)

DIRECT MATERIAL PRICE VARIANCE (MPV)

Meaning: Direct Material Price Variance (MPV) is that portion of the material cost variance which is due to the
difference between the standard price specified and the actual price paid.

Material Price Variance (MPV) is calculated as follows:

MPV = (Standard Price - Actual Price) x Actual Quantity or = (SP - AP) X AQ

Nature (a) Favourable (F) if the effect of variance is to increase the profit (i.e.where AP < SP)
(b) Adverse (A) if the effect of variance is to decrease the profit (i.e.where AP > SP)
MPV may arise due to:
1. Change in the market prices of materials.
2. Change in the quantity of materials, thereby leading to lower/higher quantity discount.
3. Not availing cash discounts, when standards set took into account such discounts
4. Change in the delivery costs.
5. Purchase of a substitute material on account of non-availability of the material specified.
6. Off-season purchasing for certain seasonal products like jute, cotton etc.
7. Change in the rates of excise duty, purchase tax, etc.
8. Failure to purchase the specified quality, thereby resulting in a different price being paid.

DIRECT MATERIAL USAGE VARIANCE (MUV) or MATERIAL QUANTITY VARIANCE (MQV)

Meaning

Direct Material Usage Variance (MUV) is that portion of the material cost variance which is due to the
difference between the standard quantity specified and the actual quantity consumed.

Material Usage Variance (MUV) is calculated as follows:

MUV = (Standard Quantity for Actual Output - Actual Quantity) x Standard Price
or (SQ X SP) – (AQ X SP) OR = (SQ - AQ) X SP
Nature
(a) Favourable (F) if the effect of variance is to increase the profit (i.e. where AQ < SQ)
(b) Adverse (A) if the effect of variance is to decrease the profit (i.e. where AQ > SQ)
MUV may arise due to:
1. Use of non-standard materials.
2. Use of non-standard material mixture.
3. Use of substitute materials.
4. Inefficiency in the use of materials.
5. Change in the quality of materials.
6. Change in the design or specification of the product.
7. Change in method of production
8. Yield from materials in excess of or less than standard yield.
9. Pilferage.
10. Defect in plant and machinery.
Division :
MUV may be further divided into:
(a) Material Mix Variance (MMV), and
(b) Material Yield Variance (MYV).
.
DIRECT MATERIAL MIX VARIANCE (MMV)
Meaning: Direct Material Mix Variance (MMV) is that portion of the material usage variance which is due to
the difference between standard and actual composition of materials.
Material Mix Variance (MMV) is calculated as follows:
MMV = Standard Cost of Revised Qty of Actual Materials consumed
minus
Standard Cost of Actual Qty of Materials Consumed
or
= (RSQ X SP) - (AQ X SP) or = (RSQ - AQ) X SP

Note: Revised Standard Quantity (RSQ) is calculated by dividing the total actual quantities of all
materials in a standard material mix ratio as follows:
RSQ = Standard Qty of one material x Total Actual Quantities of all materials
Total Standard Quantities of all materials
Nature
(a) Favourable (F) if the effect of the variance is to increase the profit (i.e. where AQ<RSQ)
(b) Adverse (A) if the effect of the variance is to decrease the profit (i.e. where AQ>RSQ)
MMV arises only when the actual two or more materials are mixed in a ratio different from the standard
material mix ratio. Change from Standard mix may be due to the non-availability of one or more
components of material mix.

DIRECT MATERIAL YIELD VARIANCE (MYV)

Meaning :MYV is that portion of the material usage variance which is due to the difference between standard
yield specified for actual quantity used and actual yield obtained. The standard yield is the output expected to be
obtained from the actual usage of materials. MYV is an output variance which represents a gain or loss on
output in terms of finished production.

Material Yield Variance (MYV) is calculated as follows:

MYV = (Actual Yield - Standard yield) x Average Standards Output Price

Notes: (i) Standard Yield for Actual Input

= Standard Output x Total AQ of all Materials
Total SQ of all Materials
: (ii) Average Standard Output Price (ASOP)
ASOP =Standard Cost of Standard Qty of all materials
Standard Output

or = SQ X SP
STANDARD OUTPUT

Nature
(a) Favourable (F) if the effect of the variance is to increase the profit (i.e. where AY>SY)
(b) Adverse (A) if the effect of the variance is to decrease the profit (i.e. where AY<SY)
MYV arises only when the actual loss as % of total actual input differs from the standard loss as % of
total standard input.

.
Example 1 . The standard and actual figures of product ‘Z’ are as under:

Standard Actual
Material quantity 50 units

Material price per unit Rs. 1.00

CALCULATE material cost variances.

The variances may be calculated as under:

(a) Standard cost = Std. Qty × Std. price = 50 units ×Rs.1.00 = 50
(b) Actual cost = Actual qty. × Actual price = 45 units ×Rs.0.80 =36

Variances:
(i) Price variance = Actual qty (Std. price – Actual price)
= 45 units (Rs.1.00 – Rs.0.80) = Rs. 9 (F)
(ii) Usage variance = Std. price (Std. qty – Actual qty.)
= Rs.1 (50 units – 45 units) = Rs. 5 (F)
(iii) Material cost variance = Standard cost – Actual cost
(Total variance) = Rs. 50 – Rs. 36 = Rs. 14 (F)
VERIFICATION = MCV = MPV+ MUV= 9+5 = 14(F)

Example 2
From the following information , calculate MCV,MPV,MQV,MMV AND
MSUV AND MYV

Standard Mix Actual Mix

Example 3 Quantity Rate P. Total Quantity Rate P. Total Calculate all
the Material Materials Units U. Rs. Rs. (Units) U. Rs. Rs. Cost Variance
from the A 600 15 9,000 640 17 10,880 following
information               provided by
Tulsian Ltd. B 800 20 16,000 950 19 18,050
             
Standard 1,000
C 25 25,000 Actual
870 26 22,620
Material Total
Qty 2,400   Price 50,000
Unit 2,460
Qty   51,550
Unit Price
  Output— 10 Units Output — 09 Units
A 30kg Rs. 20 44 kg Rs. 25
B 20kg Rs. 10 66 kg Rs.5
Total 50kg 110 kg
50 Kg output – 10% standard loss` 110 kg output – 20kg loss = 90 KG
Basic Calculations
STANDARD OUTPUT = 50 KG -10% LOSS =45KG
ACTUAL OUTPUT = 110 KG -20 KG LOSS = 90 KG

Material A Material ‘B’ Total

SQ for AO 30*90/45 = 60 20*90/45 = 40 100

AQ 44 66 110
RSQ FOR AO 60*110/100= 66 40*110/100 =44 110
BASIC CALCULATION FOR THE COMPUTATION OF MATERIAL COST VARIANCE

Type of SQ SP SQ X AQ AP AQ X (SP-AP) (SQ-AQ) (RSQ-

Materia FOR SP AP AQ)
l AO

A 60 20 1200 44 25 1100 20-25=-5 60-44=16 66-44=22

B 40 10 400 66 5 330 10-5=5 40-66=-26 44-66=-22
MCV =A= (SQ X SP) – (AQ X AP) = 1200-1100 =100 (F)
B = (SQ X SP) – (AQ X AP) =400-330 = 70(F)
MCV = 170 (F)
Material Price Variance = AQ (SP-AP)
A = 44 (-5) = Rs. 220(A)
B = 66 (5) = Rs. 330 (F)
MPV = Rs. 110 (F)
Material Usage Variance= SP (SQ- AQ)
A = 20 (16) = Rs. 320(F)
B = 10(-26) = Rs. 260 (A)
MUV = Rs. 60 (F)
Material Mix Variance = SP (RSQ- AQ)
A = 20(22) = 440 (F)
B = 10(-22) = 220(A)
MMV = 220(F)

Material Yield Variance = (Actual Yield - Standard Yield) x Average Standard Price
=( 90 KG – 90KG* 110KG) X 800 = 160(A)
100 KG 45

VERIFICATION - MCV = MPV + MUV

MUV =MMV+ MYV
LABOUR COST VARIANCE
Meaning :
Labour cost variance is the difference between the the standard labour cost and actual labour cost for actual
output.
Labour Cost Variance (LCV) is calculated as follows:
LCV = Standard Cost of Standard Labour Hours for Actual Output
minus Actual Cost of Actual Labour Hours expended for Actual Output
or = (Standard Hours for Actual Output x Standard Rate) - (Actual Hours x Actual Rate)
or = (SH X SR) - (AH X AR)
Note: Standard Labour Hours for Actual Output is calculated as follows:
= Standard Labour Hours x actual output
Standard Output
Nature
(a) Favourable (F) if the effect of the variance is to increase the profit (i.e. where the actual cost is less than the
standard cost.)
(b) Adverse (A) if the effect of the variance is to decrease the profit (i.e. where actual cost is more than the
standard cost.)
LCV may arise due to:
(a) change in Rate of Labour, or (b) change in Labour Hours, or
Division
o Labour Rate Variance (LRV), and
o Labour Efficiency Variance (LEV)
DIRECT LABOUR RATE VARIANCE (LRV)
Meaning
Direct Labour Rate Variance (LRV) is that portion of the labour cost variance which is due to the difference
between the standard rate specified and the actual rate paid.
Labour Rate Variance (LRV) is calculated as follows:
LRV = (Standard Rate - Actual Rate) x Actual Hours or = (SR - AR) X AH
Nature
1. Favourable (F) if the effect of variance is to increase the profit (i.e. where AR<SR)
2. Adverse (A) if the effect of variance is to decrease the profit (i.e. where AR>SR)
LRV may arise due to:
o Change in the basic wage rates.
o Change in the method of wage payment.
o Use of grades of labour different from the standard grade specified due to non-availability of the labour
grade specified or any other reason.
o Unscheduled Overtime.
DIRECTLABOUR EFFICIENCY VARIANCE (LEV) OR LABOUR TIME VARIANCE (LTV)
Meaning
Direct Labour Efficiency Variance (LEV) is that portion of the labour cost variance which is due to the
difference between the standard hours specified for actual output and the actual hours expended.
Labour Efficiency Variance (LEV) is calculated as follows:
LEV = (Standard Hours for Actual Output - Actual Hours) x Standard Rate
or = (SH - AH) X SR
Nature:
1. Favourable (F) if the effect of variance is to increase the profit (i.e. where AH<SH)
2. Adverse (A) if the effect of variance is to decrease the profit (i.e. where AH>SH)
LEV may arise due to:
o Use of non-standard grade of workers.
o Use of standard grade of workers but workers are inefficient.
o Use of defective method of operation.
o Use of defective or non-standard materials.
o Use of defective tools and plant and machinery.
o Poor working conditions e.g ., inadequate lighting and ventilation, exercise heating etc.
o Incompetent supervision.
LEV may be further divided into:
(a) Labour Mix Variance (LMV), and (b) Labour Yield Variance (LYV).
DIRECT LABOUR MIX VARIANCE (LMV) [OR GANG COMPOSITON VARIANCE]
Meaning :
Direct Labour Mix Variance (LMV) is that portion of the Labour Efficiency Variance which is due to the
difference between standard and actual composition of labour.
Labour Mix Variance (LMV) is calculated as follows:
LMV = Standard Cost of Revised Labour Hours minus Standard Cost of Actual Labour Hours expended
or, = (RSH x SR) - (AH x SR) or, = (RSH - AH) x SR
Note: Revised Standard Hours (RSH) are calculated by dividing the total actual hours of all grades of
labour in a standard labour mix ratio as follows:
RSH = Standard Hours of one grade of labour x Total Actual Hours of all grades of labour
Total Standard Hours of all grades of labour
Nature
(a) Favourable (F) if the effect of the variance is to increase the profit (i.e. where AH<RSH)
(b) Adverse (A) if the effect of the variance is to decrease the profit (i.e. where AH>RSH)
Why arises?
LMV arises only when the actual two or more grades of labour are mixed in a ratio different from the standard
labour mix ratio. Change from Standard mix may be due to the non-availability of one or more grades of labour
mix.
Labour Yield Variance (LYV)
Meaning : Direct labour's yield variance is that portion of the labor efficiency variance which is due to the
difference between standard yield specified for actual hours used and actual yield obtained. The standard
yield is the output expected to be obtained from the actual usage of labour. LYV is an output variance which
represents a gain or loss on output in terms of finished production.
Labour Yield Variance (LYV) is calculated as follows:
LYV = (Actual Yield - Standard yield) x Average Standard Output Rate
(i) Standard Yield for Actual Hours
= Standard Output for Total Standard Hours x Total Actual Productive Labour Hours of all grades
Total Standard Labour Hours of all grades for Actual output
(ii) or = Total (SH x SR)
Standard Output
Nature
Favourable (F) if the effect of the variance is to increase the profit (i.e. where AY > SY)
Adverse (A) if the effect of the variance is to decrease the profit (i.e. where AY < SY)
IDLE TIME VARIANCE (ITV)
Meaning Idle Time Variance (ITV) is that portion of Labour Efficiency Variance which is due to abnormal idle
time such as time lost due to power failure, machinery break-down, strike etc. It arises due to the difference
between Actual Labour Hours worked and Actual Labour Hours paid.
Idle Time Variance (ITV) is calculated as follows:
ITV = (Actual Hours worked - Actual Hours paid) x Standard Rate OR ITV = Idle Hours x Standard Rate or, =
IH x SR
Nature
Idle Time Variance is always adverse or unfavourable because idle hours represent a loss.
Example 4. Calculate Labour cost variance , Labour Rate Variance, Labour Efficiency Variance.
Particulars Standard Output Actual Output
Output in Units 100 200
Labours hours required per unit 2 hours per Unit 3 hours per unit
of Output
Rate Rs. 4 per hour Rs. 3 per hour
Solution
Standard Hours for Actual output : 200*2= 400 hours
Actual hours for Actual Output (AH) =200 x 3 = 600 hours
LCV = (SH X SR) – (AH X AR) = (400 X 4 ) – (600 X 3) = Rs. -200 (A)
LEV = (SH- AH) X SR = (400 HOURS -600 HOURS) X RS. 4 = 800 (A)
LRV = AH (SR-AR) = 600( 4-3) = Rs. 600(F)
LCV = LEV+ LRV = -200+800=600(F)

Example 5. Calculate Labour Mix Variance form the followings information

Labour Standard Actual

Hours Rate per hour Hours Rate per hour
A 40 Rs. 12 1250 hours Rs.10
B 60 Rs.9 850 hours Rs. 12
Standard Output 85Kg Actual Output 1700 kg
Solution
Labour Mix Variance
Revised Standard Hours = Standard Hours of one grade of labour x Total Actual Hours of all grades of labour
Total Standard Hours of all grades of labour

Labour A = 40 x 2100 = 840 hours , Labour B = 60 x 2100 = 1260 hours

100 100
LMV = SR (RSH- AH)
A = Rs.12 (840-1250) = RS. -4920 (A)
B = Rs.9( 1260-850) = Rs. 3690 (F)
MCV = Rs. -1230
Labour Yield Variance
Standard yield for Actual input = 85 x 2100 = 1785 output
100
Average Standard output rate = (40 x 12) + ( 60 x 9) = 1020 = Rs. 12
85 85
LYV = (AY- SY) X ASOR = (1700 kg – 1785 kg ) x Rs. 12 = Rs. -1020(A)

LEV = LMV + LYV = (-1230)+(-1020)=-3250

Example 6. CALCULATE ALL LCV ,LRV,LEV,LMV,LYV

Workers Standard Mix Actual Mix

No. of Standard Rate per No. of Actual Rate per
Workers hours hour Workers hours hour
Skilled 90 1000 2 80 900 2.50
 Semi- 60 1000 3 70 900 2
Skilled
Standard Production – 5000 Units Actual Production - 5000 Units
Standard Loss – 20% Actual Loss -900 units

Solution : Workings : Rate is given in terms per hour so Standard time and actual time should be in terms of
Hours

Group of Standard Mix Actual Mix

WORKER
TOTAL STAND TOTAL STD RATE TOTAL TOTAL ACTU TOTAL RAT TOTAL
WORKER ARD HOURS PER WAGES WORKER AL ACTUAL EPER WAGES
S HOURS HOU S HOURS HOURS HOU
R R
SK 90 1000 90000 2.00 18000 80 900 72000 2.50 180000
0
SSK 60 1000 60000 3.00 18000 70 900 63000 2.00 126000
0
TOTAL 150000 36000 135000 306000
0
PRODCUTIO UNITS UNITS
N
INPUT 5000 5000
-LOSS 1000 900
4000 4100
SH = SH FOR ACTUAL OUTPUT
SKILL WORKERS =

OUTPUT 4000 : HRS 90000 = 4100*90000/4000 = 92,250

OUTPUT 4100 : HRS ?

Semi Skilled Workers

OUTPUT 4000 : HRS 60000 = 4100*60000/4000 = 61500
OUTPUT 4100 : HRS ?

LCV = (SH X SR) – (AH X AR)

SK = (92250 X 2) – (72000 X 2.50) = 1,84,500 – 1,80,000 = +4500
SSK = (61500 X3) - (63000 X 2) = 1,84,500-126000 = +58500
= +63000(F)
LRV = AH (SR – AR)
SK =72000(2 -2.50) = -36000
SSK = 63000(3-2.00) = +63000
+27000 (F)

LEV = SR (SH-AH)

SK = 2(92250-72000) = +40500
SSK = 3(61500-63000) =-4500
LEV = 36000 (F) VERIFICATION = LCV = LRV+LEV

REVISED STANDARD HOURS

SKILLED WORKERS
STD MIX 150000 : HRS 90000 =135000 X 90000/150000=81,000
ACTUAL MIX 135000: (?)

SEMI – SKILLED WORKERS

STD MIX 150000 : HRS 60000 =135000 X 60000/150000= 54000
ACTUAL MIX 135000: (?)
LMV =SR(RSH -AH)

SK = 2(81000 – 72000) =+18000

SSK = 3(54000-63000) = -27000
LMV = -9000 (A)

Labour Yield Variance

Standard yield for Actual input = 4000 X 135000 = 3600 output
150000
Average Standard output rate = 360000 = Rs. 90
4000
LYV = (AY- SY) X ASOR =(4100-3600) X 90= 45000(F)

LEV =LMV+ LYV = 9000(A) +45000F =36000 F

Example 7. A manufacturing department of a company employing 100 workers produced 1040 units in a 42
hours week despite 5% of the time paid was lost due to an abnormal reason. The standard wage rate per hour
was Rs. 6 but the actual wage rate per hour was Rs.8. The standard output is 25 units per hour in a department
employing 100 workers. Calculate Idle time variance
Idle Time variance = Idle Hours X Standard Rate = [ 5% of (100 x 42) x 6] = 1260(A)