Calculate and analyse the following variances: labour (total, rate and efficiency).

Labour total cost variance:
Difference between standard labour cost and actual labour cost, incurred for the actual production

Labour rate variance:

Difference between standard and actual labour rate per hour for the actual hours worked
AH x (AR – SR)

Labour efficiency variance:

Difference between standard hours for actual production and the hours actually worked, valued at the standard rate
SR x (AH – SH)

Example:

Standard labour hours per unit of output: 2.8

Standard labour rate per hour: £11.50
Operations for the last month:
Actual hours worked: 6900
Actual total labour cost: £80,385
Actual output: 2300 units

What is the labour rate variance for the month?
AH x (AR – SR)

6900 hrs x (£11.65 - £11.50)

So.. 6900 x £0.15 = £1035 ADV

The £11.65 was calculated by dividing the actual total labour cost (£80,385) with the number of hours worked (6900).

The variance was adverse because the business was paying £0.15p more an hour than the standard cost card suggested?

Why? Perhaps a pay rise since the standard cost card was produced, or the business was using more experienced labour.

What is the labour efficiency variance for the month?

SR x (AH – SH)

£11.50 x (6900hrs - 6440hrs)

Can you work out where the 6400hrs came from?

Clue: Multiply the number of items made by the expected standard hours to make them.

Nice link here.