Friday, December 26, 2008


Direct Labour Cost Variances.
The direct labour total cost variance ( the difference between that output should have cost & what it did cost, in terms of labour) can be divided into two sub variances.
  • The direct labour rate variance
    This is similar to the direct materials price variance. It is the difference between the standard cost & the actual cost for the actual number of hours paid for.
    In other words, it is difference between what the labour did cost and what it should have cost.
  • The direct labour efficiency varianceIt is the difference between the hours that should have been worked for the number of units actually produced, and the actual number of hours worked, valued at the standard rate per hour.
    In other it is the difference between how many hours should have been worked and how many hours were worked, valued at the standard rate per hour.
  • Idle time varianceA company may operate a costing system in which any idle time is recorded. Idle time may be caused by machine breakdowns or not having worked to give to employees, perhaps because of bottlenecks in productions or a shortage of orders from customers. When idle time occurs, the labour forces are till paid wages for time at work, but not actual work done. Time paid for without any work being done is unproductive and therefore inefficient. In variance analysis, idle time is an adverse efficiency variance.
    When idle time is recorded separately, it is helpful to provide control information which identifies the cost of idle time separately, & in variance analysis three will be an idle time variance as a separatist pf the total labour efficiency variance. The remaining efficiency variance will then relate only to the productivity of the labour force during the hours spent actively working.
  • Labour mix and yield variances.A labour mix variance ( or team composition variance )can be calculate when more than one type or grade of labour is involved in marking a product. It is a measure of whether the actual miss of labour grades is chapter or more expensive than the standard mix .
    A labour yield variance ( or labour output variances or team productivity variance) can be calculated to see how productively people are working.
    The calculations are the same as those required for materials mix & yield variances.

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