Labor Variances
A. Formula Approach:
i. Labor cost variance = (Standard time X Standard rate) - (Actual time X Actual rate)
Or, LCV = ST X SR - AT X AR
ii. Labor rate variance = Actual time X (Standard rate - Actual rate)
Or, LRV = AT X (SR- AR)
iii. Labor efficiency variance = Standard rate X (Standard time for actual output - Actual time)
Or, LEV = SR X (RST - AT)
iv. Labor Mix Variance = Standard rate X (Revised standard time - Actual time)
Or, LMV = SR X (RST - AT)
v. Labor Yield Variance = (Actual Yield - Standard Yield) X Standard cost per unit
Or, LYV = (AY - SY) X SC
vi. Labor Idle Time Variance (LITV) = Idle time X Standard rate.
B. Tabular Approach
The steps that should be followed for a tabular approach of calculating labor variances as as follows:
1. Calculate the standard time required for the actual output in case the standard output and the actual output are different.
Standard time required for actual output = (Standard time/Standard output level) X Actual output
2. Calculate the mix rate per unit in case more than one grade of employees are engaged:
* Mix rate per unit of standard time at standard rate
= Total cost of standard time at standard rate/ total standard time
* Mix rate per unit of actual time at actual rate
= Total cost of actual time at actual rate/ Total actual time
* Mix rate per unit for actual time at standard rate
= Total cost of actual time at standard rate/ standard output level
3. Develop the working table as follows:
Working Table:
Code.........Time........Rate.......Result(Time X Rate).........Variances (U for negative and F for positive)
A................S...........S......................................................LEV = result of code (A-B) = $ U/F
B................A...........S......................................................LRV = results of code(B-c) = $ U/F
C................A...........A.....................................................LCV = results of code (A-C) = $ U/F
Where, A,B,C refer to the code. Instead of these letters any other symbol can be used.
S = standard time of labor hours
A = actual rate of wages
U = unfavorable variance
F = favorable variance.
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