7,500 units of a product are planned to be produced using 200 hrs of Skilled Labour/Labor @ Rs. 20 per hr, 400 hrs of SemiSkilled Labour/Labor @ Rs. 15/hr and 150 hrs of Unskilled Labour/Labor @ Rs. 10 per hr at a total cost of Rs. 11,500. 7,125 units of the product were manufactured using 240 hrs of skilled labour/labor @ Rs. 22 per hr, 500 hrs of Semiskilled labour/labor @ Rs. 14/hr and 220 hrs of Unskilled labour/labor @ Rs. 12 per hr. 24 hrs of Skilled Labour/Labor time, 50 hrs of SemiSkilled Labour/Labor time and 22 hrs of Unskilled Labour/Labor time were lost due to break down which is abnormal.
Is the cost incurred as planned or is there any variation?
This information is provided by the Labour/Labor cost variance.
The problem data arranged in a working table:

Standard [Production: 7,500 units] 
Actual [Production: 7,125 units] 
Time (hrs) 
Rate (Rs/hr)
 Cost (Rs) 
Rate (Rs/hr) 
Gross/Total 
Net 
Abnromal 
Time (hrs) 
Cost (Rs) 
Time (hrs) 
Cost (Rs) 
Time (hrs) 
Cost (Rs) 
Skilled 
200 
20 
4,000 
22 
240 
5,280 
216 
4,752 
24 
528 
Semi Skilled 
400 
15 
6,000 
14 
500 
7,000 
450 
6,300 
50 
700 
Un Skilled 
150 
10 
1,500 
12 
220 
2,640 
198 
2,376 
22 
264 
Total
 750 

11,500 

960 
14,920 
864 
13,428 
96 
1,492 
SR_{Mix} 
= 

⇒ SR_{Mix} 
= 

⇒ SR_{Mix} 
= 

AR_{Mix} 
= 

⇒ AR_{Mix} 
= 

⇒ AR_{Mix} 
= 

You may be required to calculate these only if you are using the direct formula for finding the Total Labour/Labor Cost Variance.

The Formulae » Labour/Labor Cost Variance (LCV)



Labour/Labor Cost Variance implies the variance in the total cost of labour/labor i.e. the difference between the actual cost of labour/labor and the standard cost of labour/labor for actual output.
⇒ Labour/Labor Cost Variance = Standard Cost of Labour/Labor for Actual Output − Actual Cost of Labour/Labor
Memorise this general formula for easier recollection (ignoring the specific formulae below)

LCV Formula interpretation



The above formulae for Labour/Labor Cost Variance, can be used in all cases i.e. both when AO = SO as well as when AO ≠ SO. When AO ≠ SO, the ratio AO/SO works as a correction factor to readjust the SQ to SQ for AO and thereby the SC to SC for AO.
Actual Time ⇒ Gross Time
Wherever you find the presence of time in the formula, you should interpret it as Actual (Gross) Time. Where there abnormal loss of time, the actual time is segregated into two as abnormal loss time and net time. Even in such cases, for the purpose of calculating the Cost Variance, the total (Gross) time should be considered for actual time.
Where AO = SO
When AO = SO, 

becomes 1 thus nullifying its effect, in which case the formula would read as:

For each labour/labor type separately
LCV = (ST_{Lab} × SR_{Lab}) − (AT_{(G)Lab} × AR_{Lab}) 
For all the labour/labor types together
TLCV = (ST_{Mix} × SR_{Mix}) − (AT_{(G)Mix} × AR_{Mix}) 
LCV = 0
Labour/Labor cost variance for each labour/labor type would be zero, when the actual labour/labor time used and the standard labour/labor time for actual output are the same as well as the actual rate at which labour/labor is paid is equal to the standard rate at which labour/labor is paid.
TLCV = 0
When more than one type of labour/labor is used, the Total LCV may become zero
 When the LCV on account of each labour/labor is zero, or
 when the unfavourable variance due to one or more labour/labor types is set off by the favourable variance due to one or more other labour/labor types.
Therefore, it would not be appropriate to conclude that there is no variance on account of any labour/labor type just because the total LCV is zero.
Where the total LCV is zero, you have to verify individual variances before concluding that all the variances (LCV's) are zero.

Solution [Using the data as it is]



For working out problems with the data consider as it has been given without having to do any recalculations, use the above formulae (which are capable of being used in all cases)
Consider the working table above:

Standard [Production: 7,500 units] 
Actual [Production: 7,125 units] 
Time (hrs) 
Rate (Rs/hr)
 Cost (Rs) 
Rate (Rs/hr) 
Gross/Total 
Net 
Abnromal 
Time (hrs) 
Cost (Rs) 
Time (hrs) 
Cost (Rs) 
Time (hrs) 
Cost (Rs) 
Skilled 
200 
20 
4,000 
22 
240 
5,280 
216 
4,752 
24 
528 
Semi Skilled 
400 
15 
6,000 
14 
500 
7,000 
450 
6,300 
50 
700 
Un Skilled 
150 
10 
1,500 
12 
220 
2,640 
198 
2,376 
22 
264 
Total
 750 

11,500 

960 
14,920 
864 
13,428 
96 
1,492 
LCV = 
({ 

× ST } × SR ) − (AT(G) × AR) 
Using, LCV_{Lab} = 
({ 

× ST_{Lab} } × SR_{Lab} ) − (AT_{(G)Lab} × AR_{Lab}) 
Labour/Labor Cost Variance due to workers who are
• Skilled 
= 
({ 

× 200 hrs } × Rs. 20/hr ) − (240 hrs × Rs. 22/hr) 


= 
(0.95 × 200 hrs × Rs. 20/hr) − (Rs. 5,280) 

= 
Rs. 3,800 − Rs. 5,280 

= 
− Rs. 1,480 
⇒ LCV_{Sk} 
= 
− Rs. 1,480 [Adv] 
• SemiSkilled 
= 
({ 

× 400 hrs } × Rs. 15/hr ) − (500 hrs × Rs. 14/hr) 


= 
(0.95 × 400 hrs × Rs. 15/hr) − (Rs. 7,000) 

= 
Rs. 5,700 − Rs. 7,000 

= 
− Rs. 1,300 
⇒ LCV_{Se} 
= 
− Rs. 1,300 [Adv] 
• Unskilled 
= 
({ 

× 150 hrs } × Rs. 10/hr ) − (220 hrs × Rs. 12/hr) 


= 
(0.95 × 150 hrs × Rs. 10/hr) − (Rs. 2,640) 

= 
Rs. 1,425 − Rs. 2,640 

= 
− Rs. 1,215 
⇒ LCV_{Un} 
= 
− Rs. 1,215 [Adv] 


Total Labour/Labor Cost Variance (TLCV) 
= 
− Rs. 3,995 [Adv] 
Alternative for Total Variance
The total labour/labor cost variance can be calculated wihthout calculating the variances for individual labour/labor types using the direct formula.
Using TLCV i.e. LCV_{Mix} 
= 


= 
( 

× 750 hrs × Rs. 

/hr) 
− (960 hrs × Rs. 

/hr) 



= 
(0.95 × Rs. 11,500) − (40 × Rs. Rs. 373) 

= 
Rs. 10,925 − Rs. 14,920 

= 
− Rs. 3,995 [Adv] 

Solution [Using recalculated data]



Where you find that the SO ≠ AO, you may alternatively recalculate the standard to make the SO = AO and use the figures relating to the recalculated standard in the working table. In such a case, the formulae that you use would look simpler (without the adjustment factor AO/SO).
From the data relating to the problem, it is evident that AO ≠ SO. Thus we recalculate the standard data for Actual Output [Refer to the calculations].
Consider the recalculated standard data and the actual data arranged in a working table.

Standard [Production: 7,125 units] 
Actual [Production: 7,125 units] 
Time (hrs) 
Rate (Rs/hr)
 Cost (Rs) 
Rate (Rs/hr) 
Total 
Normal 
Abnromal 
Time (hrs) 
Cost (Rs) 
Time (hrs) 
Cost (Rs) 
Time (hrs) 
Cost (Rs) 
Skilled 
190 
20 
3,800 
22 
240 
5,280 
216 
4,752 
24 
528 
Semi Skilled 
380 
15 
5,700 
14 
500 
7,000 
450 
6,300 
50 
700 
Un Skilled 
142.5 
10 
1,425 
12 
220 
2,640 
198 
2,376 
22 
264 
Total
 712.5 

10,925 

960 
14,920 
864 
13,428 
96 
1,492 
LCV = (ST × SR ) − (AT(G) × AR)
Using, LCV_{lab} = (ST_{Lab} × SR_{Lab} ) − (AT_{(G)Lab} × AR_{Lab})
Labour/Labor Cost Variance due to Workers who are
• Skilled 
= 
(190 hrs × Rs. 20/hr) − (240 hrs × Rs. 22/hr)


= 
Rs. 3,800 − Rs. 5,280 

= 
− Rs. 1,480 
⇒ LCV_{Sk} 
= 
− Rs. 1,480 [Adv] 
• SemSkilled 
= 
(380 hrs × Rs. 15/hr) − (500 hrs × Rs. 14/hr)


= 
Rs. 5,700 − Rs. 7,000 

= 
− Rs. 1,300 
⇒ LCV_{Se} 
= 
− Rs. 1,300 [Adv] 
• Unskilled 
= 
(142.5 hrs × Rs. 10/hr) − (220 kgs × Rs. 12/hr)


= 
Rs. 1,425 − Rs. 2,640 

= 
− Rs. 1,215 
⇒ LCV_{Un} 
= 
− Rs. 1,215 [Adv] 


Total Labour/Labor Cost Variance (TLCV) 
= 
− Rs. 3,995 [Adv] 
Note:
The above formula can be used only when the standard output and the actual output are the same.
Alternative for Total Variance
The total labour/labor cost variance can be calculated wihthout calculating the variances for individual labour/labor types using the direct formula.
Using TLCV i.e. LCV_{Mix} = (ST_{Mix} × SR_{Mix}) − (AT_{(G)Mix} × AR_{Mix})
⇒ TLCV i.e. LCV_{Mix} 
= 
(712.5 hrs × Rs. 

/hr ) − (960 hrs × Rs. 

/hr) 


= 
Rs. 10,925 &minusl Rs. 14,920 

= 
− Rs. 3,995 [Adv] 
You dont need to recalculate the standard
The formula with the adjustment factor AO/SO can be used in all cases i.e. both when AO = SO and AO ≠ SO. Therefore, you don't need to rebuild the working table by recalculating the standards for the purpose of finding the variances.
Check:
The same problem was solved in both the cases above. The only difference being that in the second case, the data was considered by recalculating the Standard for Actual Output to make AO = SO.

Who is held responsible for the Variance?



Since Labour/Labor Cost Variance represents the total difference on account of a number of factors it would not be possible to directly fix the responsibility for the variance. This explains the reason for analysing the variance and segregating it into its constituent parts.

Constituents of Labour/Labor Cost Variance



In the overview of labour/labor variances we have seen that the labour/labor cost variance is actually a synthesis of three variances, "Labour/Labor Rate of Pay Variance" and "Labour/Labor Usage/Efficiecy Variance" and "Labour/Labor Idle Time Variance".
We know,
LCV 
= 
({ 

× ST } × SR ) − (AT(G) × AR) 

= 
({ 

× ST } × SR ) + [− (AT(G) × AR)] 


[Adding and deducting (AT(G) × SR)] 

= 
({ 

× ST } × SR ) + [− (AT(G) × SR) + (AT(G) × SR)] − (AT(G) × AR)] 


[Adding and deducting the same quantity does not alter The value of the expression] 

= 
[({ 

× ST } × SR ) − (AT(G) × SR)] + [(AT(G) × SR) − (AT(G) × AR)] 

= 
[Labour/Labor (Gross) Efficiency/Usage Variance] + [Labour/Labor Rate of Pay Variance] 
LCV 
= 
L(G)EV/L(G)UV + LRPV 


