Question

Illustration 8: A factory working for 50 hours a week employs 100 workers on a job work. The
standard rate is Re. 1 an hour and standard output is 200 units per gang hour. During a week in June
ten employees were paid at 80 p. an hour and five at Re. 1.20 an hour. Rest of the employees were
paid at the standard rate. Actual number of units produced was 10,200. Calculate labour cost
variances.

Answer 1

Answer:

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Answer 2

Answer:

150 (F)

Explanation:

(i) Cost Variance = Standard Cost – Actual Cost

                           5,100 – `4,950 = `150 (F)

Workings:

(a) Calculation of Actual Cost:

85 workers for 50 hours @ 1 per hour                                                        = 4,250

10 workers for 50 hours @ 80 p. per hour                                                  = 400      

5 workers for 50 hours @ `1.20 per hour                                                   = 300

Total actual cost                                                                                               4,950

(b)  Calculation of Standard Rate:

Standard cost per (gang hour) = 100 × 50 × `1 = `5000

Standard production (per gang hour)

                                                     = 100 × 200 × 50 = 10000 unit

Standard rate per unit = `5000

                                            10000

                                      = 50 p. per unit.

(c) Calculation of Standard Cost:

Actual production × Standard rate 10,200 units × 50 p. per unit = `5,100

(ii)  Rate Variance:

As the actual wage rate has deviated from the standard in respect of only 15 workers out of a total of 100 workers, wages rate variance would be calculated only in respect of these 15 workers.

Actual Hours (Standard Rate – Actual Rate)

Therefore, 500 Hours (`1 – 80 p.) = `100 (F)

                    250 Hours (`1 – `1.20) = `50 (A)

Thus, the total rate variance is `50 (F).

(iii)  Efficiency Variance: Efficiency variance is indicated by the fact that, as compared with standard production of 10,000 units (200 units × 50 hours), the actual production is 10,200 units

Standard Rate (Standards Hours – Actual Hours) `1 (5,100 - 5,000) = `100 favourable. Calculation of Standard Hours= 5000 10200 = 5,100 hours.

                                                         10000

Yield Variance:

Standard labour cost per unit of output (SY – AY)

0.50 (10,000 – 10,200) = `100 (F)

Verification: Cost Variance = Rate Variance + Efficiency Variance

                                             150 (F) = 50 (F) + `100 (F)