Labours efficiency variance

1. PRESENTED BY:
LOKESH
M.COM 1ST SEM
ROLLNO: 200968
Submitted to : DR.
SACHIN SIR
“Without labour nothing prospers.”
Labour Efficiency Variance

2. Meaning of Labour Efficiency Variance : is a function of the
difference between the hours worker should have consumed
in actual production and the actual hours worked and the
standard wage rate Also called
1. Labour Quantity variance
2. Labour Usage variance
3. Labour Spending variance
Formula : LEV = (STD HOUR * ACTUAL OUTPUT) – (ACTUAL HOUR * ACTUAL OUTPUT)* SR
(4*100)-(5*100)*25
(400-500)*25 = (2500)Adverse
Particular Standard Actual
Labours- hours per unit 4 5
Wage rate per unit 25 30
Units produced 100

3. Labour Efficiency Variance can be further subdivided into :
1. Labour mix variance
2. Labour Yields variance
3 .Labour Idle variance (arise when abnormal idle time)
IDLE TIME VARIANCE

4. LABOUR MIX SUB VARIANCE
Labour mix variance arises only when two or more different types of
workers employed and the composition of an actual grade of workers
differ from the standard composition of workers. The change in the
labour composition may be due to the shortage of one grade of labour.
This variance indicates how much labour cost variance is there due to
the change in labour composition.
It is also called Gang composite variance
It is calculated with the help of the following formula:
LABOUR Mix Variance = Standard Cost of Standard Mix
Standard Cost of
Actual Mix
LMV = (RSH – AHW) X SR
Where,
RSH = Actual Total Hours Worked X Standard Ratio of
Workers

6. • In the given questions we calculate labour
mix variance • Calculation of revised std
hours(RSH) •
RSH =(std hours of the garde ÷ total std
) × total actual hours •
Grade A= (3000÷5000)×5100 = 3060hrs •
Grade B = (2000÷5000)×5100= 2040hrs
• LMV= (RSH- AH)× SR
• A= (3060-3200)×2= ₹280(A)
B= (2040-1900)×3 = ₹420(F)
LMV= ₹140(F)

7. LABOUR YIELD VARIANCE
Yield variance is the difference between actual output and standard
output of a production or manufacturing process, based on standard
inputs of materials and labor. The yield variance is valued at
standard cost. Yield variance is generally unfavorable, where the
actual output is less than the standard or expected output, but it can
be that output expects expectations as well.
Labour yield variance =[Actual yield
- std.yield from actual input) × std
labour cost per unit of output

8. EXAMPLE:
• Std output = 500units
• Actual output = 450 units
• Std time = 1000hrs •
Std rate = 20 per hours •
Std time per unit = 1000hrs÷500 units
hrs •
Std cost per unit = 2hrs@20=₹40 •
Labour yield variance=(atcual yield- std
yield)×std cost per unit of output
• =(450-500)×₹40=₹2000(A)

9. Idle Time Variance
IDLE TIME VARIANCE: MEANS THAT TIME IN WHICH
LABORERS DO NOT ENGAGE IN PRODUCTION ACTIVITY. SO, IF THERE
IS ANY ABNORMAL IDLE TIME, IT WILL INCREASE THE COST OF
PRODUCTION. SO, IT IS VERY NECESSARY TO CALCULATE IDLE TIME
VARIANCE AND IF THERE IS UNFAVORABLE IDLE TIME VARIANCE .

10. Causes of Idle time
1. MACHINE BREAK-DOWN:
2. POWER FAILURE
3. IMPROPER MAINTENANCE,
4. LACK OF SPARES AND. ...
5. WAITING FOR WORKERS:
6. (A) ABSENTEEISM.
7. (B) STAYING AWAY FROM THE JOB,
8. LACK OF MATERIALS:
(A) DELAYS IN PROCUREMENT,
(B) IN-BALANCING OF PRODUCTION,
9. LACK OF INSTRUCTIONS:
(A) FROM FOREMAN.
(B) FROM PLANNING

11. IDLE TIME VARIANCE (LITV) :
LITV = IT or IH×SR
IT= IDLE TIME OR IH = IDLE HOUR

12. Reference : MANAGEMENT ACCOUNTING BY
M.N ARORA {HIMALYA PUBLISHING HOUSE }
MANAGEMENT ACCOUNTING TEXT AND PROBLEMS AND cases
M Y Khan P K JAIN Mc GRAW HILL Edcaution
Thank you so much for your
interest and attention.