Labour/Labor :: Standard Time/Cost for Actual Output

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Standards for Actual Output

Standards for actual output can be seggregated as

Standard Time for Actual Output [ST for AO]
The labour/labor time that should have been used for the actual output, had the labour/labor time been utilised as per the standard.
Standard Cost for Actual Output [SC for AO]
The labour/labor cost that would have been incurred for the actual output, had the labour/labor been used (time) and employed (wage rate) at the rates as per the standard.

	Budgeted/Standard [Output : 80 units]			Actual [Output : 80 units]
	Time (hrs)	Rate (Rs/hr)	Cost (Rs)	Time (hrs)	Rate (Rs/hr)	Cost (Rs)
Operators	160	12	1,920	168	12.50	2,100

Where the Standard output and Actual Output are the same i.e. SO = AO, these figures can be obtained straightaway from the available data by building up the working table.

The standard is given for 80 units of output and the actual output achieved is also 80 units.

Where are these figures used?

The standard quantity and cost for actual output are useful in identifying

The variance in labour/labor time used by comparing the actual labour/labor time used (168 hrs) and the standard labour/labor time (160 hrs). This variance valued at the standard wage rates gives what is called the "Labour/Labor Efficiency/Usage Variance".
The variance in cost can be identified by comparing the actual cost (Rs. 2,100) and the standard cost (Rs. 1,920). This variance is what is called "Labour/Labor Cost 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 Quantity for Actual Output and Standard Cost for Actual Output or (b) the actual input where we obtain the Standard Quantity for Actual Input and Standard Output for Actual Input.

Where Standard Output (SO) and Actual Output (AO) are not equal i.e. SO ≠ AO, we cannot obtain the variances by comparing the given data. In such a case we will have to recalculate the standards such that the AO and SO would be the same to enable us to derive variances by comparison.

Budgeted/Standard
[Output : 500 units] Actual
[Output : 400 units]

Time
(hrs) Rate
(Rs/hr) Cost
(Rs) Time
(hrs) Rate
(Rs/hr) Cost
(Rs)

Operators 1,000 12 12,000 880 12.50 11,000

From this data, is it appropriate to say that the production was achieved at a lesser cost? or that the labour/labor time had been used efficiently? Surely not. Why?

Because the actual labour/labor time utilised and the cost incurred is for manufacturing 400 units whereas the budget/standard is for manufacturing 500 units.

Comparing the actual labour/labor time utilised for 400 units of output (880 hrs) with the standard labour/labor time for 500 units of output (1,000 kgs) and concluding that the labour/labor time utilised is very low is inappropriate.
At the same time, comparing the actual labour/labor cost incurred for 400 units of output (Rs. 11,000) with the standard labour/labor cost of 500 units of output (Rs. 12,000) and concluding that the cost incurred is very low is also erroneous.

The comparison would be appropriate and meaningful if we compare

The standard labour/labor time of 400 units which works out to 800 hrs {(1,000 ÷ 500) × 400} and the actual labour/labor time used.
The standard labour/labor cost of 400 units which works out to Rs. 9,600 {(12,000 ÷ 500) × 400} and the actual cost of 400 units.

Therefore to find

The variance in the labour/labor time used we need the standard time for actual output.
The variance in the cost of labour/labor we need the standard cost for actual output.

Recollect that standards can be built for any production level. Standards may be expressed for either 1 unit of output, 2 units of output, ... to any production level. Recalculating standards implies drawing up the standards for a particular production level based on our calculation needs.

Formula » Standard Time for Actual Output

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) 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

Note
The Working Table for Labour/Labor ≡ Working Table for Materials . However, where there is abnormal loss of time, you will notice that the actual data is segregated between net and idle times in case of labour/labor.
Standard Time for Actual Output
The logic behind the calculation and the formula for deriving the required time

For Each Labour/Labor type Separately
Logic
If the standard production of 7,500 units, the standard Time (Sk) is 200 hrs
If the standard production is 7,125 units, the Time (Sk) would be ??

Standard Time (Sk) for an Output of 7,125 units

=

7,125 units {Actual Output}
7,500 units {Standard Output}
× 200 hrs {Standard Time (Sk)}

⇒ ST_Lab for AO =

AO
SO
× ST_Lab

Using the data given above,

Standard Time for Actual Output [ST for AO] for

Skilled Workers =

7,125 units
7,500 units
× 200 hrs

= 0.95 × 200 hrs ⇒ ST_Sk for AO = 190 hrs

Semi-Skilled Workers =

7,125 units
7,500 units
× 400 hrs

= 0.95 × 400 hrs ⇒ ST_Se for AO = 380 hrs

Unskilled Workers =

7,125 units
7,500 units
× 150 hrs

= 0.95 × 150 hrs ⇒ SQ_C for AO = 142.5 hrs

Total 712.5 hrs

For All Labour/Labor Types Together
Logic
If the standard production of 7,500 units, the Standard Time is 750 hrs
If the standard production is 7,125 units, the Time would be ??

Standard Time for an Output of 7,125 units

=

7,125 units {Actual Output}
7,500 units {Standard Output}
× 750 hrs {Standard Time (Standard Mix)}

⇒ ST_Mix for AO =

AO
SO
× ST_Mix

Using the data given above,

Standard Time for Actual Output [ST_Mix for AO] for

Total/All Labour/Labor types =

7,125 units
7,500 units
× 750 hrs

= 0.95 × 750 hrs ⇒ ST_Mix for AO = 712.5 hrs

Note:
The data from the actuals that is used in the above calculations is the Actual Output (AO) only. Thus, whether the actual data has abnormal loss time or not would not be relevant for these calculations.

Formula » Standard Cost for Actual Output

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

Note
The Working Table for Labour/Labor ≡ Working Table for Materials . However, where there is abnormal loss of time, you will notice that the actual data is segregated between net and idle times in case of labour/labor.

Standard Cost for Actual Output
The logic behind the calculation and the formula for deriving the required cost

For each Labour/Labor type Separately
Standard Cost for Actual Output = Standard time for Actual Output × Standard Rate.

⇒ SC_Lab for AO = ST_Lab for AO × SR

(Or) =

AO
SO
× ST_Lab × SR_Lab

(Or) =

AO
SO
× SC_Lab

[Useful where ST_Lab for AO is already calculated]

[Useful where ST_Lab, SR_Lab, SO, AO data is available]

[Useful where only SC_Lab, AO, SO data is available]

Using the data in the above example,

Standard Cost for Actual Output [SC for AO] for

Skilled Workers =

7,125 units
7,500 units
× 200 hrs × Rs. 20/hr

= 0.95 × Rs. 4,000 ⇒ SC_Sk for AO = Rs. 3,800

Semi-Skilled Workers =

7,125 units
7,500 units
× 400 hrs × Rs. 15/hr

= 0.95 × Rs. 6,000 ⇒ SC_Se for AO = Rs. 5,700

Unskilled Workers =

7,125 units
7,500 units
× 150 hrs × Rs. 10/hr

= 0.95 × Rs. 1,500 ⇒ SC_Un for AO = Rs. 1,425

Total Rs. 10,925

For all Labour/Labor types together
Standard Cost of Standard Mix for Actual Output
= Standard time of Standard Mix for Actual Output × Standard Rate of Standard Mix.

⇒ SC_Mix for AO = ST_Mix for AO × SR_Mix

(Or) =

AO
SO
× ST_Mix × SR_Mix

(Or) =

AO
SO
× SC_Mix

[Useful where ST_Mix for AO is already calculated]

[Useful where ST_Mix, SR_Mix, SO, AO data is available]

[Useful where only SC_Mix, AO, SO data is available]

Using the data in the above example,

Standard Cost for Actual Output [SC for AO] for

All Labour/Labor Types =

7,125 units
7,500 units
× 750 hrs × Rs.
46
3
/hr

0.95 × Rs. 11,500 ⇒ SC_Mix for AO = Rs. 10,925

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
15
/hr

Note:
The data from the actuals that is used in the above calculations is the Actual Output (AO) only. Thus, whether the actual data has abnormal loss time or not would not be relevant for these calculations.

The above data (in the working table) with the recalculated standard would be.

	Time (hrs)	Rate (Rs/hr)	Cost (Rs)	Rate (Rs/hr)	Total		Normal		Abnromal
	Standard [Production: 7,125 units]			Actual [Production: 7,125 units]
	Time (hrs)	Rate (Rs/hr)	Cost (Rs)	Rate (Rs/hr)	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