Labour/Labor :: Recalculating Standard Time/Cost based for actual input time

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Standards for Actual Input

Standards for actual input can be segregated as

Standard Time for Actual Input [ST_Lab for AI]
This has relevance only when two or more labour/labor types are being used in the production process. This is also called Standard Time for Actual Mix, where Mix indicates the total labour/labor time utilised in the production process.
It indicates the labour/labor time of each labour/labor type that should have been present in the actual mix had the labour/labor been employed/utilised in standard (mix) ratio.
Standard Cost for Actual Input [SC for AI]
It indicates the labour/labor cost of each type of labour/labor that should have been incurred had the labour/labor been employed in the actual mix in standard (mix) ratio and are paid for (wage rates) at the rates as per the standard.

We use the labour/labor type name as subscript for identifying each labour/labor type separately and the word Mix to identify all the labour/labor types together. [ST_Sk for standard quantity of skilled labour/labor type, AT_Mix for total time of actual mix (all the labour/labor types together) etc.]

Where ST_Mix = AT_Mix, these figures can be obtained straight away from the available data by building up a working table.

Standard
[Production: 8,640 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 230.4 20 4,608 22 240 5,280 216 4,752 24 528

Semi Skilled 460.8 15 6,912 14 500 7,000 450 6,300 50 700

Un Skilled 172.80 10 1,728 12 220 2,640 198 2,376 22 264

Total 864 13,248 960 14,920 864 13,428 96 1,492

The standard is given for 864 hrs of input (labor/labour time) and the actual input (labor/labour time) is also 864 hrs.

Note

Where there is abnormal loss of time, the actual time considered here is the net actual time i.e. the time left after deducting the idle time from the gross time.

Where are these figures used?

The standard (labor/labour) time and cost for actual input are useful in identifying

The variance in labor/labour time used on account of the difference between the standard (mix) ratio and the actual (mix) ratio. This can be done by comparing the actual time of each labor/labour type used with the standard time of that labor/labour type. This difference valued at the standard rates gives what is called the "labor/labour Mix Variance" or "Gang Composition Variance"

Why Recalculate Standards

Standards may be expressed for any level of activity. We may be required to recalculate the standards for a level of activity other than the one given. This recalculation may be based on (a) the actual output where we obtain the Standard (labor/labour) time for Actual Output and Standard Cost for Actual Output or (b) the actual input where we obtain the Standard (labor/labour) time for Actual Input and Standard Output for Actual Input.

Where ST_Mix ≠ AT_Mix, we cannot obtain the variances by comparing the given data. In such a case we will have to recalculate the standards such that ST_Mix = AT_Mix so that we would be the able to derive variances by comparison.

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

From the above data, is it appropriate to say that the production was achieved at a higher cost since all the labor/labour time used seems to be greater than the standard? or that the labour/labor had been used inefficiently? Surely not. Why?

Because the total (labour/labor) time actually utilised and the cost incurred is in relation to an input (labour/labor time) of 864 hrs whereas the budget/standard is in relation to a total input (labour/labor time) of 750 hrs.

Formula » Standard Time for Actual Input

This has relevance only when two or more types of labour/labor are being used in the production process. It indicates the time for which each labour/labor type should have been utilised in the actual mix had the labour/labor types/times been taken in standard mix ratio.
Consider the following 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

Standard Time for Actual Input
The logic behind the calculation and the formula for deriving the required Time

For Each Labour/Labor Type Separately
Logic
If the Standard Time of Standard Mix is 750 hrs Standard Time of Skilled Workers is 200 hrs
If the Standard Time of Standard Mix is 864 hrs Standard Time of Skilled Workers would be ?

Standard Time of Skilled Workers for Actual Input/Mix of 864 hrs

=

864 hrs {Actual Time of Mix}
750 hrs {Standard Time of Mix}
× 200 hrs {Standard Time of Skilled Workers in the Standard Mix}

⇒ ST_Lab for AI =

AT_Mix
ST_Mix
× ST_Lab

Using the data in the above example,

Standard Time for Actual Input [ST for AI] for

Skilled Workers =

864 hrs
750 hrs
× 200 hrs

= 1.152 × 200 hrs ⇒ ST_Sk for AI = 230.4 hrs

Semi-Skilled Workers =

864 hrs
750 hrs
× 400 hrs

= 1.152 × 400 hrs ⇒ ST_Se for AI = 460.8 hrs

Unskilled Workers =

864 hrs
750 hrs
× 150 hrs

= 1.152 × 150 hrs ⇒ ST_Un for AI = 172.8 hrs

Total 864 hrs

For all Labour/Labor Types together
Calculating this for all the labour/labor types together doesn't carry any meaning.
Check
If the Standard Time of Standard Mix is 750 hrs Standard Mix is 750 hrs
If the Standard Time of Standard Mix is 864 hrs Standard Mix would be ??

Standard Mix for Actual Mix of 864 hrs

=

864 hrs {Actual Time of Mix}
750 hrs {Standard Time of Mix}
× 750 hrs {Standard Time of Mix}

= 864 hrs

⇒ ST_Mix for AI = AT_Mix

Using the data in the above example,

Standard Time for Actual Input [ST for AI] for

All Labour/Labor Types = AT_Mix ⇒ ST_Mix for AI = AT_Mix = 864 hrs

Standard Cost of Standard Time for Actual Input [SC of ST for AI]

It indicates the cost of each labour/labor type that should have been incurred had the labour/labor time been employed in the actual mix in standard (mix) ratio and have been valued at the standard rates.
Consider the following 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

For Each Labour/Labor Types Separately

Standard Cost of Standard Time for Actual Input = Standard Time for Actual Input × Standard Rate.

⇒ SC of ST_Lab for AI = ST_Lab for AI × SR_Lab

(Or) =

AT_Mix
ST_Mix
× ST_Lab × SR_Lab

(Or) =

AT_Mix
ST_Mix
× SC_Lab

Using the data in the above example,

Standard Cost of Standard Time for Actual Input [SC of ST for AI] for

Skilled Workers =

864 hrs
750 hrs
× 200 hrs × Rs. 20/hr

= 1.125 × Rs. 4,000 ⇒ SC of ST_Sk for AI = Rs. 4,608

Semi Skilled =

864 hrs
750 hrs
× 400 hrs × Rs. 15/hr

= 1.125 × Rs. 6,000 ⇒ SC of ST_Se for AI = Rs. 6,912

Unskilled Workers =

864 hrs
750 hrs
× 150 hrs × Rs. 10/hr

= 1.125 × Rs. 1,500 ⇒ SC of ST_Un for AI = Rs. 1,728

Total Rs. 13,248

For All LabourLabor types Together

Standard Cost of Standard Time for Actual Input = Standard Time for Actual Input × Standard Rate.

⇒ SC of ST_Mix for AI = ST_Mix for AI × SR_Mix

(Or) = AT_Mix × SR_Mix

Using the data in the above example,

Standard Cost of Standard Time for Actual Input [SC of ST for AI] for

All Labour/Labor Types = AT_Mix × SR_Mix

⇒ SC of ST_Mix for AI =
864 hrs × Rs.
46
3
/hr

= Rs. 13,248

Standard Rate of Mix =

Standard Cost of Mix
Standard Time of Mix

⇒ SR_Mix =

SC_Mix
ST_Mix

Using the data in the above example,

Standard Rate of Mix

⇒ SR_Mix =

Rs. 11,500
750 hrs

=
Rs.
46
3
/hr

Standard Output/Yield for Actual Input [SO/SY for AI]

Yield and Output are synonymously used. Standard Output/Yield indicates the output that should have been achieved had the production been normal.
Consider the following 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

For Each Labour/Labor Type Separately

As per standards, if the Labour/Labor time of Skilled Workers is 200 hrs Output is 7,500 units
If the Labour/Labor time of Skilled Workers is 216 hrs (Net Actual Time) Output should have been ?
Standard Output/Yield for Actual Input (of Skilled Workers)

=

216 hrs {Actual Time}
200 hrs {Standard Time}
× 7,500 units {Standard Output}

⇒ SO for AI_Lab =

AT_Lab
ST_Lab
× SO

Using the data in the above example,

Standard Output/Yield for Actual Input of

Skilled Workers =

216 hrs
200 hrs
× 7,500 units

= 1.08 × 7,500 units ⇒ SO for AI_Sk =
8,100 units

Semi-Skilled Workers =

450 hrs
400 hrs
× 7,500 units

= 1.125 × 7,500 units ⇒ SO for AI_Se =
8,437.5 units

Unskilled Workers =

198 hrs
150 hrs
× 7,500 units

= 1.32 × 7,500 units ⇒ SO for AI_C =
9,900 units

For All Labour/Labor Types Together
As per standards, if the Time of Mix is 750 hrs Output is 7,500 units
If the Time of Mix (actual input) is 864 hrs Output should have been ?
Standard Output/Yield for Actual Input (of Mix)

=

864 hrs {Actual Mix}
750 hrs {Standard Mix}
× 7,500 units {Standard Output}

⇒ SO for AI_Mix =

AT_Mix
ST_Mix
� SO

Using the data in the above example,

Standard Output/Yield for Actual Input of

Labour/Labor Mix =

864 hrs
750 hrs
× 7,500 units

= 1.152 × 7,500 units ⇒ SO for AI_Mix =
8,640 units

Note
The standard output for the actual mix is not equal to the sum of the Standard Outputs for each labour/labor type separately.

The given data with the recalculated standards would be.

By recalculating the standards for actual input we would make the Time of Standard Mix ST_Mix and the Actual Mix AT_Mix in the recalculated data to be the same.

Standards » For Actual Output vs. For Actual Input

In the recalculated figures, where you recalculate standards for the actual output, the standard output and the actual output would be the same

The factor used for incorporating the change is
AO
SO

In the recalculated figures, where you recalculate standards for the actual input, the standard input (mix) and the actual input (mix) would be the same

The factor used for incorporating the change is
AT_Mix
ST_Mix

You may not need to recalculate standards !!!
In solving problems, we can make use of formulae which would enable us to calculate all the labour/labor variances without recalculating the standards, by incorporating the above mentioned adjustment factors in the formulae itself.
All the formulae that we use and advocate are those which have this adjustment factor built into it thus enabling you to use the same set of formulae in all situations.

Author Credit : The Edifier ... Continued Page L:4