UNIT 11: LABOUR VARIANCES

Structure
11.0 Objectives
11.1 Introduction
11.2 Direct Labour Cost Variance
11.2.1 Direct Labour Rate Variance
11.2.2 Direct Labour Time Variance or Labour Efficiency Variance
a) Labour Idle Variance
b) Labour Mix Variance
c) Labour Revised Efficiency Variance
11.3 Let Us Sum Up
11.4 Key Words
11.5 Answers to Check Your Progress
11.6 Terminal Questions

11.0 OBJECTIVES
After studying this unit, you will be able to:
●● understand the meaning of labour cost variance;
●● explain how standards for direct labour are set;
●● assess the efficiency of the usage of labour in a manufacturing
concern; and
●● analyse different sub - variances of material and labour.

11.1 INTRODUCTION
You have learnt in the previous unit the meaning, classification of variances
and different types of material cost vaaiance. Another important type of
variance is the labour cost variance. Besides material cost variance a proper
control of the labour cost variance is imperative for the smooth running of
any manufacturing enterprise. In this unit different aspects of direct labour
cost variances will be described.

11.2 DIRECT LABOUR COST VARIANCE

The labour directly engaged in the production of a product is known as
direct labour. The wages paid to such labour is known as direct wages.
For example, the wages paid to a machine operator is a direct labour cost.
Labour variances arise when actual labour costs are different from standard
labour cost. The setting up of standard direct labour cost will depend upon
the various factors like standard methods of production, the time taken
by different categories of workers, the expected wage rate of different
categories of workers, different grades of labour mix, etc.
Direct labour variance is the difference between the standard direct labour
cost specified for the activity to be achieved and the actual direct labour cost
incurred. It is calculated as follows:
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Direct Labour Cost Variance = Standard Labour Cost – Actual Labour Cost Labour Variances

or
= (Std. hours × Std. Rate) – (Actual hours × Actual rate)
= (SH × SR) – (AH × AR)
It is to be noted that when the actual output differs from standard output,
standard labour cost of actual output is to be worked out and then the
following formula is to be applied:
Direct Labour Cost Variance = Standard Cost of Actual Production – Actual
Cost
Let us see the following illustration how Direct Labour Cost Variance is
calculated:
Illustration 1
From the following information, calculate direct labour cost variance:
Standard wage rate per hour : Rs. 5
Standard time set : 1000 hours
Actual wage rate per hour : Rs. 6
Actual time taken : 980 hours.
Solution
Direct Labour Cost Variance = (SH × SR) – (AH × AR)
= (1000 × Rs.5) – (980 Rs.6)
= Rs.5000 – Rs.5880
= Rs.880 (A)
Direct Labour Cost Variance is sub-divided into:
1) Labour Rate Variance, and
2) Labour Efficiency Variance
Labour Efficiency or Time Variance may again sub-divided into:
a) Labour Idle Time Variance
b) Labour Mix Variance, and
c) Labour Revised Efficiency Variance
The above classification may also be shown diagramatically as follows:

Labour Cost Variance

Labour Rate Labour Time Variance

Variance (Labour Efficiency Variance)

Labour Idle Time Labour Mix Labour Revised

Variance Variance Efficiency Variance

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Standard Costing and 11.2.1 Labour Rate Variance
Variance Analysis
Labour rate variance is that portion of the labour usage variance which is
due to the difference between standard rate specified and actual rate paid. It
is calculated with the help of the following formula:
Labour Rate Variance = (Standard Rate – Actual Rate) × Actual Hours Paid
LRV = (SR – AR) AHP
The variance will be favourable if actual rate is less than the standard
rate and it will be adverse if actual rate is more than the standard rate.
The responsibility for labour rate variance lies with the production centre.
Labour rate variance is generally uncontrollable. If the variance is due to
wrong grade of labour, the responsibility lies on production foreman.
Labour rate variance arises due to the following reasons:
i) Change in the basic wage rate of piece-work rate.
ii) Employment of one or more workers of different grades than the
standard grade.
iii) Payment of more overtime than fixed earlier.
iv) Higher or lower wage rates paid to casual labourers.
v) Faculty recruitment and placement of workers.
vi) New workers not being paid at full wage rates etc.
Illustration 2
Using the data given in illustration 1, calculate Labour Rate Variance.
Solution
Labour Rate Variance = (Standard Rate – Actual Rate) × Actual Hours Paid
= (Rs.5 – Rs.6) × 980 Hours
= Re.1× 980 hours
= Rs. 980 (Adverse)
11.2.2 Labour Time Variance or Labour Efficiency Variance
Labour efficiency ratio is the difference between the standard labour hours
specified for actual output and the actual hours paid for. This variance helps
in controlling efficiency of workers and also labour cost. This variance can
be calculated as follows:
Labour Efficiency Variance
= (Standard Hours for Actual Production – Actual Hours
Worked) × Standard Rate
LEV = (SHAP AHW) SR
If actual time taken for doing a work is more than the specified standard
time, the variance will be unfavourable and vice versa. Labour efficiency
variance arises due to one or more of the following reasons:
i) Defective machinery and equipment
ii) Lack of proper supervision
iii) Use of defective or non-standard materials
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iv) Lack of proper training to workers Labour Variances

v) Poor working conditions

vi) Labour turnover or change over of workers from one operation to
another
vii) Alterations in the methods of production
viii) Loss of time due to delay in receipt of instructions or receipt of raw
material tools.
ix) Failure of power
x) Bad industrial relations etc.
Using the data given in Illustration 1, Labour Efficiency Variance is
calculated as follows:
Labour Efficiency Variance
= (Standard Hours for Actual Output – Actual Hours) × Standard Rate
= (1000 hours – 980 hours) × Rs. 5
= 20 hours Rs.5
= Rs. 100 (Favourable)
It is to be observed that the work has been completed in 980 hours as against
1000 standard hours set for the production. This may be due to the efficiency
of workers. That is why, this variance is called Labour Efficiency Variance.
It is to be noted that the labour rate variance and labour efficiency variance
is equal to labour cost variance as these two are sub-variances of labour cost
variance.
Verification
Direct Labour Cost Variance = Labour Rate Variance + Labour
Efficiency Variance
Labour Rate Variance = Rs.980 (Adverse) as calculated in
Illustration 8
Hence, DLCV = LRV + LEV
= Rs.880 (A) = Rs.980 (A) + Rs.100 (F)
Labour efficiency variance is the responsibility of Production Manager
and is similar to materials usage variance. Both these variance measure the
difference in performance.
Labour efficiency variance can be further sub-divided into:
a) Labour Idle Time Variance
b) Labour Mix Variance
c) Labour Revised Efficiency Variance
d) Labour Yield Variance
Let us study these in detail.
a) Labour Idle Time Variance: Labour Idle time variance is a sub-
variance of labour efficiency variance. It is the standard wage
payable during the idle hours due to abnormal circumstance like
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Standard Costing and strikes, lockout, break-down or machinery, power cut, shortage or
Variance Analysis raw materials, etc. The abnormal idle time should be separated from
the labour efficiency variance as it is due to the reasons beyond the
control of workers. Otherwise it will show inefficiency on the part
of workers. This variance will always be adverse. It is calculated as
follows:
Idle Time Variance = Idle Hours × Standard Rate
ITV = IH × SR
For example, if the idle time in the data given in Illustration 7, is 20
hours, then the idle time variance would be
Idle Time Variance = Idle Hours × Standard Rate
= 20 hours × Rs.5
= Rs.100 (A)
Illustration 3
The following information is supplied to you:
Standard time for a month : 4000 Hours
Standard wage rate : Rs. 2.25 per hour
Number of labourers employed : 30
Average working days in a month : 25
No. of hours a worker works per day : 7 hours
Total wage bill in a month : Rs. 13,125
Idle time due to power failure : 100 hours
You are required to calculate the following:
a) Labour Cost Variance
b) Labour Rate Variance
c) Labour Efficiency Variance
d) Labour Idle Time Variance
Solution
To find out the above variance, we require information about the actual time
worked and actual wage rate. Actual time worked and the exact wage rate
will be calculated as follows:
Standard time = 4000 hours
Standard wage rate = Rs. 2.25
Actual time = 30 workers × 25 days × 7 hours
= 5250 hours
Total Wage Bill
Actual Wage Rate =
Actual time
Rs.13125
= = Rs.2.50
5250 hours

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a) Labour Cost Variance = Standard Labour Cost – Actual Labour Cost Labour Variances

= (Std. Time × Std. Rate) – (Actual time × Actual Rate)

= (4000 hours × Rs. 2.25) – (5250 hours × Rs. 2.50)
= Rs.9000 – Rs. 13125
= Rs. 4125 (A)
b) Labour Rate Variance = 
Actual Time (Std. Labour Rate – Actual
Labour Rate)
= 5250 hours (Rs. 2.25 – Rs.2.50)
= 5250 × 0.25
= Rs. 1312.50 (A)
c) Labour Efficiency Variance = Standard Labour Rate × (Std. Time –
Actual Time)
= Rs. 2.25 (4000 hours – 5250 hours)
= Rs. 2.25 × 1250 hours
= Rs. 2812.50 (A)
d) Labour Idle Time Variance = Idle Time × Standard Rate
= 100 hours × Rs. 2.25
= Rs. 225 (A)
a) Verification
Direct Labour Cost Variance = L
 abour Rate Variance + Labour Efficiency
Variance
Rs. 4125 (A) = Rs.1312.50 (A) + Rs.2812.50 (A)
Rs. 4125 (A) = Rs.4125(A)
b) Labour Mix Variance
It is also known as Gang Composition Variance. It is similar to Material Mix
variance and is a part of labour efficiency variance. Labour mix variance
arises only when two or more different types of workers employed and the
composition of actual grade of workers differ from the standard composition
of workers. The change in the labour composition may be due to shortage of
one grade of labour. This variance indicate how much labour cost variance
is there due to the change in labour composition. It is calculated with the
help of the following formula:
Labour Mix Variance = Standard Cost of Standard Mix –
Standard Cost of Actual Mix
LMV = SCSM – SCAM,
or
Labour Mix Variance = (Revised Standard Hours – Actual Hours
Worked) × Standard Rate
Symbolically,
LMV = (RSH – AHW) × SR

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Standard Costing and Where,
Variance Analysis
RSH = Actual Total Hours Worked × Standard Ratio of Workers
or
Standard Hours of the grade
×Total Actual Hours Worked
Total Standard Hours
Where,
Actual Hours Worked = Actual hours – Idle Time
If the actual hours taken are less than the Revised Standard Hours, the
variance is favourable, and vice versa.
Illustration 4
From the following information, calculate Labour Mix Variance:
Standard Actual
Grade A 80 workers @ Rs. 5 per hour 100 workers @ Rs 6 per hour
Grade B 120 worker Rs. 3 per hour 80 workers @ Rs. 2 per hour
200 180
Solution
Labour Mix Variance = (Revised Standard hours – Actual Hours Paid) ×
Standard Rate
Revised Standard Hour
Standard Hours of the grade
= ×Total Actual Hours Worked
Total Standard Hours
80 2
RSH for Grade A = × 180 = 72 hours OR 180 hrs × = 72 hrs.
200 5
120 2
RSH for Grade B = × 180 = 108 hours OR 180 hrs × = 108 hrs.
200 5

LMV = (RSH – AHP) SR

Grade A = (72 – 100) × Rs.5 = Rs.140 (A)

Grade B = (108 – 80) × Rs.3 = Rs. 84 (F)

LMV =    Rs.56(A)
c) Labour Revised Efficiency Variance (LREV)
This variance arises due to the difference between the total actual hours
taken and the total standard hours specified for the actual output. This
variance is a sub-variance of labour efficiency variance. It arises when there
is difference between actual hours paid and actual hours worked, there will
be Revised Efficiency Variance and Idle Time variance. The formula for
Labour Revised Efficiency Variance is:
LREV = (Standard Hours for Actual output – Revised Standard
Hours) × Standard Rate
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Where, Labour Variances
Standard Hours of the grade
RSH = ×Total Actual hours paid
Total Standard Hours
Or
= Total Actual Hours Paid × Standard Ratio
d) Labour Yield Variance (LYV)
It is similar to Material Yield Variance. It studies the impact of actual yield
on labour cost where output varies from the standard. The formula for LYV
is:
Labour Yield Variance
= (Actual yield – Standard yield) × Standard labour cost per unit of output
Where,
Std. output
Std. Yield = × AHW;
Total AH

(It is applicable where there is a difference in the actual total hours worked
and the total hours paid)
Std.cost
Std. labour cost per unit =
Std.Output (Units)
If the standard yield is more than the actual yield, the variance will be
adverse and vice versa.
Illustration 5
From the following data, calculate Labour Yield Variance
Standard time : 600 hours
Standard rate : Rs. 10 per hour
Standard output : 300 units
Actual output : 225 units
Solution
Labour Yield Variance = (Actual Yield – Standard Yield) × Std. Output cost
per unit
Standard Cost
Standard output cost per unit =
Standard Output (unit)
600 hrs × Rs. 10
=
300 units

= Rs. 20
LYV = (Actual Yield – Std Yield) × Std Output per unit

= (225 units – 300 units) × Rs.20

= Rs.1500 (A)
Illustration 6
The following information is available from the records of a Company:

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Standard Costing and
Standard wages Actual wages
Variance Analysis
Skilled: 90 workers @ Rs.2 per hour 80 workers @ Rs.2.50 per hour
Unskilled: 60 workers @ Rs.3 per hour 70 workers @ Rs.2 per hour
Budgeted hours : 1000 Actual hours: 900
You are required to calculate the following:
i) Labour Cost Variance
ii) Labour Rate Variance
ii) Labour Efficiency Variance
iv) Labour Mix Variance
v) Revised Labour Efficiency Variance
Solution
Type of Standard Actual
workers *Hours Rate Amount **Hours Rate Amount
(Rs.) (Rs.)
Skilled 90,000 Rs.2 1,80,000 72000 Rs.2.50 1,80,000
Unskilled 60,000 Rs.3 1,80,000 63000 Rs.2.50 1,26,000
1,50,000 3,60,000 1,35,000 3,06,000
* Hours = No. of Workers × Budgeted Hours
**Hours = No. of Workers × Actual Hours
i) Labour Cost Variance
= (Std Hours of actual output × Std Rate) – (Actual Hours × Actual
Rate)
Skilled = (90,0000 × Rs.2) – (72,000 × Rs.2.50) = NIL
Unskilled = (60,0000×Rs.3) – (63,000 ×Rs.2.50) = Rs. 54,000 (F)
LCV = Rs. 54,000 (F)
ii) Labour Rate Variance
= (Std Rate – Actual Rate) × Actual Hours
Skilled = (Rs.2 – Rs.2.50) × 72,000 = Rs. 36,000 (A)
Unskilled = (Rs.3 – Rs.2) × 63,000 = Rs. F)
LRV = Rs. 27,000 (F)
iii) Labour Efficiency Variance
= (Std. Hours – Actual Hours) × Standard Rate
Skilled = (90,000 – 72,000) × Rs. 2 = Rs. 36,000 (F)
Unskilled = (60,000 – 63,000) × Rs.3 = Rs. 9,000 (A)
LEV = Rs. 27000 (F)
iv) Labour Mix Variance
= (Revised Std. hours – Actual Hours) × Standard Rate
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 Where, Labour Variances
Standard Hours of the grade
Revised Standard Hour = × Total Actual Hours Worked
Total Standard Hours
Or
= Actual Hours Worked × Std Ratio

90,000 3
Skilled = ×135000 = 81000 hours or 13500 hrs × = 81000 hrs
1,50,000 5
60,000 2
Unskilled = ×135000 = 54000 hours or 13500 hrs × = 54000 hrs
1,50,000 5

LMV : (RSH – AH) × SR

Skilled = (81000 – 72000) × Rs. 2 = Rs. 81000 (F)
Unskilled = (54000 – 63000) × Rs. 3 = Rs. 27000 (A)
LMV = Rs. 9,000 (A)

iv) Labour Revised Efficiency Variance = (Std Hrs – Revised Std Hrs.) ×
Std Rate
Skilled = (90000 – 81000) × Rs. 2 = Rs. 18000 (F)
Unskilled = (60000 – 54000) × Rs. 3 = Rs. 18000 (F)
= Rs. 36,000 (F)
Verification
LCV = LRV + LEV
Rs.54000(F) = Rs.27000 (F) + Rs.27000 (F)
Rs.54000(F) = Rs.54000 (F)
LEV = LMV + LREV
Rs.27000 (F) = Rs. 9,000 (A) + Rs. 36,000 (F)
Rs.27000 (F) = Rs.27000 (F)
Illustration 7
A gang of workers normally consists of 60 skilled, 30 semi-skilled and 20
unskilled. They are paid at standard rates per hour as under:
Skilled Re.0.80
Semi-skilled Re.0.60
Unskilled Re.0.40
In a normal working week of 40 hours, the gang is expected to produce
4000 units of output.
During the week ended 31 December, the gang consisted of 80 skilled,
20 semi-skilled and 10 unskilled. The actual wages paid were @ Re.0.70,
Re.0.65 and Re.0.30 respectively. 3200 units were produced. Four hours
were lost due to abnormal idle time.

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Standard Costing and Calculate
Variance Analysis
i) Wage variance
ii) Wage Rate Variance
iii) Labour Efficiency Variance
iv) Idle Time Variance
v) Labour Mix Variance
vi) Labour Revised Efficiency Variance
vii) Labour Yield Variance
Solution
Type of Standard Actual
workers Hours Rate Amt Hours Rate Amt
(Rs.) (Rs.) (Rs.) (Rs.)
Skilled 60 40 = 2400 0.80 1920 80×40 = 3200 0.70 2240
Semi-skilled 30 40 = 1200 0.60 720 20×40 = 800 0.65 520
Unskilled 20 40 = 800 0.40 320 20 × 40 = 400 0.30 120
Total 4400 2960 4400 2880

Std. Cost Rs. 2960

Standard Wage Rate per hour (Group) = = = Rs 0.673
Std hours 4400
Std. Cost
Standard Coast of actual output = × Actual output
Std output
3200 units
= × Rs. 2960 = Rs. 2368
4000 units

Standard hours for actual output :

2400
Skilled = × 3200 = 1920 hours
4000
1200
Semi - Skilled = × 3200 = 960 hours
4000
800
Unskilled = × 3200 = 640 hours
4000
Actual hours paid = 4400
Actual hours worked = 3960 i.e., ( 4400 hours – 440 hours idle time)
Calculation of Variances:
i) Labour Cost Variance = (Std Cost of actual output – (Actual cost)
Skilled = Rs. 1536 – Rs. 2240 = Rs. 704 (A)
Semi-Skilled = Rs. 576 – Rs. 520 = Rs. 56 (F)
Unskilled = Rs. 256 – Rs. 120 = Rs. 136 (F)
LCV (Group) = Rs. 2368 – 2880 = Rs. 512 (A)
ii) Labour Rate Variance = (SR – AR) × AHP
Skilled = (Re. 0.80 – Rs. 0.70) × 3200 hours = Rs. 320 (F)
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 Labour Variances
Semi-Skilled = (Re. 0.60 – Re. 0.65) × 800 hours = Rs. 40 (A)
Unskilled = (Re. 0.40 – Re. 0.30) × 400 hours = Rs. 40 (F)
LRV (Group) = Rs. 320 (F)
iii) Labour Efficiency Variance = (SH for Actual Output – AHP) SR
Skilled = (1920-3200) Re. 0.80 = Rs. 1024(A)
Semi-Skilled = (960-800) Re. 0.60 = Rs. 96 (F)
Unskilled = (600-400) Re. 0.40 = Rs. 96 (F)
LEV (Group) = Rs. 832 (A)
iv) Idle Time Variance = Standard hour Rate per hour × Idle hours
Skilled = Re. 0.80 × 320 hrs = Rs. 256 (A)
Semi-Skilled = Re. 0.60 × 80 hrs = Rs. 48 (A)
Unskilled = (Re. 0.40 × 40 hrs = Rs. 16 (A)
LEV (Group) = Rs. 320 (A)
Calculation of Idle Hours
Skilled = 80 × 4 hrs = 320 hrs
Semi-skilled = 20 × 4 hrs = 80 hrs
Skilled = 10 × 4 hrs = 40 hrs
Out of the total actual hours of 4400, total idle hours are 440. Now the
labour mix variance and labour yield variance are computed on the
basis of 3960 hrs (4400 hrs – 440 hrs).
v) Labour Mix Variance = (Revised Std hrs – Actual hours worked) Std
rate.
Skilled = (2160 – 2880) × 0.80 = 576 (A)
Semi-Skilled = (1080 – 720) × 0.60 = 216 (F)
Unskilled = (720 – 630) × 0.40 = 144 (F)
LMV = 216 (A)
Std. hrs
RSH = × Total AHW or Actual Hours worked × Std Ratio (6 : 3 : 2)
Total Std hrs

2400 6
Skilled = × 3960 = 2160 or 3960 × = 2160 hrs
4400 11
1200 3
Semi-Skilled = × 3960 = 1080 or 3960 × = 1080 hrs
4400 11
800 2
Unskilled = × 3960 = 720 or 3960 × = 720 hrs
4400 11
Actual hours worked = (Normal working hours – Idle time) × No. of workers
Skilled = (40 hrs. – 4 hrs.) × 80 = 2880 hrs
Semi- skilled = (40 hrs. – 4 hrs.) × 20 = 720 hrs
Semi- skilled = (40 hrs. – 4 hrs.) × 10 = 360 hrs
Total = 3960 hrs
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Standard Costing and vi) Labour Revised Efficiency Variance
Variance Analysis
= (Std hrs for actual output – Revised Std hrs) × Std Rate.
Skilled = (1920 – 2160) × 0.80 = 192 (A)
Semi-Skilled = (960 – 1080) × 0.60 = 72 (A)
Unskilled = (640 – 720) × 0.40 = 32 (A)
LREV = 296 (A)
4400 hrs
Std hours for actual output = × 3200 units = 3520 hrs
4000 units
6
Skilled: 3520 hrs = = 1920 hrs
11
3
Semi-skilled: 3520 hrs × = 960 hrs
11
2
Unskilled: 3520 hrs × = 640 hrs
11

Labour Yield Variance may be calculated in place of Labour Revised

Efficiency Variance as follows:
Labour Yield Variance = (Actual Yield – Std Yield) × Std. Labour cost per
unit of outputs
where,
Std Cost Rs. 2960
Std labour cost per unit of output = = = 0.74
Std Output 4000 hrs
Std Output
Std Yield = × AHW
Total AH

LYV = (3200 – 3600) × 0.74 = 296 (A)

4000
Standard Yield = × 3960 = 3600 units
4400
Check:
i) LCV = LRV + LEV    : 512 (A) = 320 (F) + 832 (A)
ii) LEV = ITV + LMV + LYV : 832 (A) = 320 (A) + 216(A) + 296 (A)
Check Your Progress A
1) State any two reasons for causing Labour Rate Variance.
a) …………………………………………………………………
b) …………………………………………………………………
2) What do you understand about Labour Efficiency Variance.
……………………….………………………………………………
………………………………………………………………………
3) What do you mean by Labour Mix Variance ? Why does it arise ?
………………………………………………………………………
………………………………………………………………………

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4) State whether the following statements are ‘True’ or ‘False’ Labour Variances
i) The difference between standard labour cost and actual labour
cost is called direct labour cost variance.
ii) Labour idle time variance is the sub-variance of labour rate
variance.
iii) Direct Labour Cost Variance = Labour rate variance + Labour
efficiency variance.
(iv) Labour efficiency variance and material usage variances measure the
difference in labour performance.
(v) The idle time variance may be either favourable or unfavourable.
11.3 LET US SUM UP
The Labour directly engaged in the production of a product is known as
direct labour and the wages and to such labour are termed as the direct
wages. Labour variances arise when actual labour cost are different from
the standard labour cost.
Direct labour variance is the difference between the standard direct labour
cost specified for the activity to be achieved and the actual direct labour cost
incurred.
Direct Labour cost variance may be sub-divided into labour price and Labour
Efficiency Variances. Labour Mix Variance, Labour Yield Variance and
Labour Idle Variances are the sub-variances of Labour Efficiency variances.
The sub-division of variance of each element of cost gives valuable
information to the management to control cost and decision making.
11.4 KEY WORDS
Direct Labour Cost Variance : It is the difference between the standard
labour cost specified and the actual direct labour cost incurred.
Labour Rate Variance : The difference between the standard rate specified
and the actual rate paid.
Labour Efficiency Variance : The difference between the standard labour
hours specified and actual hour paid for.
Labour Idle Time Variance : Standard wage payable during the idle hours
due to abnormal circumstances like strikes, lockouts etc.
Labour Mix Variance : Difference between standard cost of standard mix
and standard cost of actual mix.
11.5 ANSWERS TO CHECK YOUR PROGRESS
A. 4. i) True, ii) False, iii) True iv) True, v) False
11.6 TERMINAL QUESTIONS
1) What is meant by direct labour cost variance ? Explain with the help
of a suitable illustration.
2) Write notes on the following :
a) Labour Rate Variance
b) Labour Idle Time Variance
c) Labour Mix Variance
d) Labour Revised Efficiency variance
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Standard Costing and 2) What are the methods of classification of variances?
Variance Analysis
3) A manufacturing concern which has adopted standard costing
furnishes you the following information:
Standard
Material for 70 kg Finished Products 100 kg
Price of materials Re.1 per kg
Actual
Output 2,10,000 kgs
Material used 2,80,000 kgs
Cost of materials Rs.2,52,000
Calculate:
a) Material Usage Variance
b) Material Price Variance
c) Material Cost Variance
4) The details about the composition and the weekly wage rate of labour
force engaged on a job scheduled to be completed in 30 weeks are as
follows:
Category No. of Standard Actual no. of Actual
of Labourers Weekly Labourers weekly
Workers wage rate wage rate
Skilled 75 60 70 70
Sem- 45 40 30 50
Skilled
Unskilled 60 30 80 20
The works get completed in 32 weeks. Calculate the Labour Variances.
5) In a factory 100 workers are engaged and the average rate of wages
is Rs.5/per hour. Standard working hours per week are 40 and the
standard performance is 10 units per gang hour.
During a week in April, 2005 wages paid for 50 workers were Rs.5
per hour, 10 workers at Rs.3.50 per hour and 40 workers at Rs.5.20
per hour. Actual output was 380 units.
The factory did not work for 5 hours due to breakdown of machinery.
Calculate:
a) Labour Cost Variance
b) Labour Rate Variance
c) Labour Efficiency Variance
d) Labour Yield Variance
e) Idle Time Variance
[Ans. LVC = Rs. 8280 (F), LRV = Rs. 280 (F), LEV = Rs. 8000 (F),
   LYV = Rs. 818 (F), ITV = Rs. 1000 (A)]
Note : These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University,
These are for your practice
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