Labour/Labor :: Recalculating Standard Time/Cost 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 [STLab 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. [STSk for standard quantity of skilled labour/labor type, ATMix for total time of actual mix (all the labour/labor types together) etc.]

Where STMix = ATMix, 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 STMix ≠ ATMix, we cannot obtain the variances by comparing the given data. In such a case we will have to recalculate the standards such that STMix = ATMix 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}

      ⇒ STLab for AI =
    ATMix
    STMix
    × STLab

    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 ⇒ STSk for AI = 230.4 hrs
    Semi-Skilled Workers =
    864 hrs
    750 hrs
    × 400 hrs
    = 1.152 × 400 hrs ⇒ STSe for AI = 460.8 hrs
    Unskilled Workers =
    864 hrs
    750 hrs
    × 150 hrs
    = 1.152 × 150 hrs ⇒ STUn 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

      ⇒ STMix for AI = ATMix

    Using the data in the above example,

    Standard Time for Actual Input [ST for AI] for
    All Labour/Labor Types = ATMix ⇒ STMix for AI = ATMix = 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 STLab for AI = STLab for AI × SRLab
    (Or) =
    ATMix
    STMix
    × STLab × SRLab
    (Or) =
    ATMix
    STMix
    × SCLab

    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 STSk for AI = Rs. 4,608
    Semi Skilled =
    864 hrs
    750 hrs
    × 400 hrs × Rs. 15/hr
    = 1.125 × Rs. 6,000 ⇒ SC of STSe for AI = Rs. 6,912
    Unskilled Workers =
    864 hrs
    750 hrs
    × 150 hrs × Rs. 10/hr
    = 1.125 × Rs. 1,500 ⇒ SC of STUn 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 STMix for AI = STMix for AI × SRMix
    (Or) = ATMix × SRMix

    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 = ATMix × SRMix
    ⇒ SC of STMix for AI =
    864 hrs × Rs.
    46
    3
    /hr
    = Rs. 13,248

    Standard Rate of Mix =
    Standard Cost of Mix
    Standard Time of Mix
    SRMix =
    SCMix
    STMix

    Using the data in the above example,

    Standard Rate of Mix
    ⇒ SRMix =
    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 AILab =
    ATLab
    STLab
    × 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 AISk =
    8,100 units
    Semi-Skilled Workers =
    450 hrs
    400 hrs
    × 7,500 units
    = 1.125 × 7,500 units ⇒ SO for AISe =
    8,437.5 units
    Unskilled Workers =
    198 hrs
    150 hrs
    × 7,500 units
    = 1.32 × 7,500 units ⇒ SO for AIC =
    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 AIMix =
    ATMix
    STMix
    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 AIMix =
    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.

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

By recalculating the standards for actual input we would make the Time of Standard Mix STMix and the Actual Mix ATMix 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
ATMix
STMix

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.

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