Labour Variances
Normally it is taken that labour is a variable cost but at times it becomes fixed cost, as it is not possible to remove or retrench in case of fall/stoppage in production.
•Labour Rate Standard and Grades of Labour
This is basically dependent on the agreement with the labour unions or rate prevalent in the particular area or industry.
•Labour Efficiency Standard
The labour (quantities) efficiency means the number of hours that the appropriate grade of workers will take to perform the necessary work. It is based on actual performance of worker or group of workers possessing average skill and using average effort while performing manual operations or working on machine under normal conditions. The standard time is fixed keeping in mind the past performance records or work-study. This is on the basis that is acceptable to the worker as well as to the management.
Normally it is taken that labour is a variable cost but at times it becomes fixed cost, as it is not possible to remove or retrench in case of fall/stoppage in production.
•Labour Rate Standard and Grades of Labour
This is basically dependent on the agreement with the labour unions or rate prevalent in the particular area or industry.
•Labour Efficiency Standard
The labour (quantities) efficiency means the number of hours that the appropriate grade of workers will take to perform the necessary work. It is based on actual performance of worker or group of workers possessing average skill and using average effort while performing manual operations or working on machine under normal conditions. The standard time is fixed keeping in mind the past performance records or work-study. This is on the basis that is acceptable to the worker as well as to the management.
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| Classification of Labour Variances |
Labour Cost Variance
The labour cost variance is also called the labour total variance , is the difference between standard direct labour cost and the actual direct labour cost incurred for the production achieved.
Labour Rate Variance
The labour rate variance is the difference between the actual direct labour rate per hour and: standard direct labour rate per hour, multiplied by the actual hours paid, i.e., the rate per hour to the direct labour force more or less than standard use of higher/lower grade of skilled workers as compared with the planned or wage inflation causes this variance.
Labour Rate Variance = Actual time (Standard rate − Actual rate)
Labour Efficiency Variance
The labour efficiency variance is the difference between the actual hours taken to produce actual output and the standard hours that this output should have taken, multiplied by the standard rate per hour.
The possible cause for this variance is due to use of higher/lower grade of skilled workers planned or the quality of material used, errors in allocating time to jobs.
Labour Efficiency Variance = Standard Rate [Standard time for − Actual actual output time]
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