Labour variances, Cost Accounting


Labour Cost Variance (LCV)

Described by the ICMA, London, 'Labour cost variance is the variation between the standard direct wages specified for the production achieved, whether completed or not and actual direct wages incurred'. If the standard cost is greater, the variation is favorable and vice versa.

LCV = Standard cost of labour - Actual cost of labour

= (Standard time x Standard rate) - (Actual time x Actual rate)

Labour Rate Variance (LRV)

Described by ICMA, London, this variance is 'the variation between the standard and the actual direct labour rate per hour for the total hours worked'. If the standard rate is greater, the variance is favorable and vice versa.

LRV = Actual time (Standard wage rate x Actual wage rate)

Reasons for rate variance may be:

       · Overtime work at lower or higher than the specified rate

      · Changes in the basic wage rates

      · Faulty recruitment

      · vary in the composition of the gang at a different rate from the standard

      · Employing people of different grades than planned

    · Excessive overtime

  · lower or higher rate paid to casual laborers etc

Labour Time or Labour Efficiency Variance (LEV)

    LEV variance has been described as - 'that portion of the direct wages cost variance which is the variation between the standard direct wages cost for the production achieved whether completed or not, and the actual hours at standard rates (plus incentive bonus).This variance may be unfavorable or favorable.

LEV = Standard rate (Standard time - Actual time)

Reasons for efficiency variance may be:

  • Bad workmanship because of inefficient training or incomplete instructions or dissatisfaction among the workers
  • Production delays and hold-ups
  • Bad working conditions
  • Defective equipments, materials And tools and

       •Defective supervision

Labour Idle Time Variance (LITV)

This variance get arise because of the time during which the laborer. Remains idle because of abnormal reasons like - power failure, strikes, machine breakdowns etc.

LITV = Abnormal idle time x Standard hourly rate

Labour Mix Variance or Gang Composition Variance (LMV): This is that part of Labour cost variance that results from employing not similar grades of labour from the standard fixed in advance.   It is the variation between the standard composition of workers and the actual gang of workers.

LMV = (Standard cost of standard mix) - (Standard cost of Actual mix)

Labour Yield Variance (LYV):  It is the variation between the standard labour output and actual output or yield.  If the actual production is higher than the   actual production, it would result in a favorable variance and vice versa.

Posted Date: 10/15/2012 7:28:53 AM | Location : United States

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