Labour/Labor :: Idle Time Variance

... From Page L:8
A Problem  
 
200 hrs of Skilled Labour/Labor @ Rs. 20 per hr, 400 hrs of Semi-Skilled Labour/Labor @ Rs. 15/hr and 150 hrs of Unskilled Labour/Labor @ Rs. 10 per hr were planned to be utlised for manufacturing 7,500 units of a product. 240 hrs of skilled labour/labor @ Rs. 22 per hr, 500 hrs of Semi-skilled labour/labor @ Rs. 14/hr and 220 hrs of Unskilled labour/labor @ Rs. 12 per hr were actually used for manufacturing 7,125 units of the product. 16 hrs of Skilled Labour/Labor time, 50 hrs of Semi-Skilled Labour/Labor time and 22 hrs of Unskilled Labour/Labor time were lost due to break down which is abnormal.

What is the variation in total cost on account of time lost on account fo abnormal reasons i.e. abnormal idle time?
This information is provided by the Labour/Labor Idle Time 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)
Total Normal 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

The Formulae Labour/Labor Idle Time Variance (LITV)  
 
That part of the Labour/Labor cost variance which arises on account of abnormal loss of labour/labor working time is identified as Labour/Labor Idle Time variance.

It's values is equal to the "Standard Cost of Abnormal Idle Time"
⇒ Labour/Labor Idle Time Variance = Standard Cost of Abnormal Idle Time

  • For each Labour/Labor Type Separately

    LITV = SC of AT(A)
    LITV = AT(A) × SR
  • For all Labour/Labor Types together [Total Labour/Labor Idle Time Variance :: TLITV]

    When two or more types of labour/labor are used for the manufacture of a product, the total Labour/Labor Idle Time variance is the sum of the variances measured for each labour/labor type separately.

    ⇒ TLITV = LITVSk + LITVSe + ....

    No Direct Formula

    There is no direct formula for calculating the total labour/labor idle time variance.
    TLITV ≠ AT(Ab)Mix × SRMix

LITV Formula interpretation  
 
The above formulae for Labour/Labor Idle Time Variance can be used in all cases i.e. when AO = SO, AO ≠ SO, STMix = ATMix and STMix ≠ ATMix. Standard Rate present in the formula is unaffected by standard recalculation. Standard Time which changes on recalculating standards is not found in the formula.
  • It is Always Negative

    This indicates a loss and is always negative. The variance represents the value of time lost on account of abnormal reasons. The measure of this variance is just a value and is not the difference between two values. Standard for abnormal loss is irrational.

    There is no possibility for this variance to generate a positive value. It can only be zero when there is no abnormal loss time in which case the total time and the net time are the same.

  • Gross Efficiency Variance = Net Efficiency Variance + Idle Time Variance

    LEV/LUV(G) = (ST − AT(G)) × SR
    = (ST − {AT(N) + AT(Ab)}) × SR       [AT(G) = AT(N) + AT(Ab)]
    = (ST − AT(N) − AT(Ab)) × SR
    = ST × SR − AT(N) × SR − AT(Ab) × SR
    = {(ST − AT(N)) × SR} − {AT(Ab) × SR}
    = LEV/LUV(N) − LITV

    That part of the standard cost of actual labour relevant to the abnormal loss is put aside and is named idle time variance. This is always negative.

    LEV/LUV(G) = LEV/LUV(N) + LITV

    This should also explain the reason behind considering only the "Actual (Net) Time" in calculating the "Labour/Labor Efficiency/Usage Variance".

LEV/LUV(G) vs. LEV/LUV(N)

In measuring the efficiency of labour/labor employed, we need to think in terms of the output that has been achieved in the time they have worked (if they are working under standard conditions).

If the time they worked for includes time that has been lost on account of abnormal reasons like breakdown of machinery, power shut down, natural calamities, etc., it would not be possible to measure their efficiency accurately.

The labourers/laborers can be held responsible for inefficiency, if efficiency is measured taking the actual productive time only.

Recalculating Standards does not effect LITV Calculations  
 
Since standard time is not used in this calculation, the formula would be the same for all conditions i.e. when AO = SO or when AO ≠ SO as well as when ST(SM) = AT(AM) or when ST(SM) ≠ AT(AM).

AO ≠ SO and ST(SM) ≠ AT(AM)

Standard
[Production: 7,500 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 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

AO = SO

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

STMix = ATMix

Standard
[Production: 8,640 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 256 20 5,120 22 240 5,280 216 4,752 24 528
Semi Skilled 512 15 7,680 14 500 7,000 450 6,300 50 700
Un Skilled 192 10 1,920 12 220 2,640 198 2,376 22 264
Total 960   14,720   960 14,920 864 13,428 96 1,492

Solution [in all cases]  
 

Using, LITV = − (AT(A) × SR)

Labour/Labor Idle Time Variance due to labour/labor types who are
Skilled = − (24 hrs × Rs. 20/hr) = − Rs. 480 [Adv or Unf]
Semi-skilled = − (50 hrs × Rs. 15/hr) = − Rs. 750 [Adv or Unf]
Unskilled = − (22 hrs × Rs. 10/hr) = − Rs. 220 [Adv or Unf]
Total Labour/Labor Idle Time Variance = − Rs. 1,450 [Adv or Unf]

Formulae using Inter-relationships among Variances  
 
  • Where there is abnormal loss time

    Since LCV = LRPV + LUV/LEV + LITV
    LITV = LCV − LUV/LEV − LRPV

  • Verification

    The interrelationships between variances can also be used to verify the correctness of the answeres we derive through our calculations

    We know LCV = LRPV + LUV + LITV.
    Using the data for these,
    LRPV + LUV + LITV = (− Rs. 420) + (− Rs. 2,125) + (− Rs. 1,450)
    = − Rs. 3,995
    = LCV → TRUE

    Who is held responsible for the Variance?  
     
    Since this variance is on account of abnormal reasons, the responsibility for it can be attributed to some department or person in-charge only after knowing the reasons for the abnormal loss of time.

    Say, if the reason for the laborers/labourers sitting idle is breakdown of machinery, then the person who is to keep the machinery in shape by conducting regular maintenance check would be responsible for this loss.

    Alternatively, when there is a power failure on account of a natural calamity, no one can be blamed, but the organisation has to take note of the variance so that it can get itself prepared to face such a possibility in the future.

    Author Credit : The Edifier ... Continued Page L:10

    ♣ Copyright Krishbhavara. All rights reserved ♣ Site optimized for Internet Explorer 5.5 and above