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|Revising the Standards|
Revising the standard implies changing the standard itself. This will (may) result in the change in either the time taken for unit production or the labour/labor wage rate paid per hour. Revision is necessary in some situations where the planned conditions do not exist,
Say for example, the organisation has planned to manufacture a product using skilled, semi-skilled and un-skilled workers in equal proportions i.e. in the ratio 1 : 1 : 1. Subsequently, the skilled labourers were not available to the extent needed and it would be difficult or costly to employ the required number of labourers/laborers at a reasonable cost. To overcome this situation, the production plan has been changed to manufacture the product by employing more number of semi-skilled and un-skilled workers, thereby employing the skilled, semi-skilled and un-skilled workers in the ratio 2 : 3 : 3. The actual production has been carried on using the revised plan.
If you are to compare the actual data with the original standard it would give erroneous conclusions. Therefore the standard data should be revised to incorporate this change and that should be used for comparison with the actual data.
Since the actual production (5,000 units) and the standard production (5,000 units) are the same, the data can be straight away used for comparing and evaluating variances. This data gives us the idea that the variance in labour/labor cost is just Rs. 200 (incurred Rs. 36,200 as against a standard of Rs. 36,000).
This is erroneous because the data does not take into consideration the revision in standard that has been made. Had the revision been considered, the labour/labor time would have been Skilled - 600 hrs, Semi-skilled - 900 hrs and Un-skilled - 900 hrs of a total labour/labor time of 2,400 hrs.
The above data with the revised standard would be:
On considering the revised standard we can see that the variance in labour/labor cost is Rs . 1,700 (incurred Rs. 36,200 as against a standard of Rs. 34,500).
Where does this count?When once a variance is identified, the next logical step is to find out the reasons for variance and then take corrective action. If the revised standards are not considered the organisation may draw wrong conclusions and take action against those who are not really responsible for the variance.
Here, the actual data compared with the unrevised standard indicates that the cost incurred is only marginally more than the standard to the extent of Rs. 200 whereas there was a variation to the extent of Rs. 1,700. This is revealed only when the revised standard has been used for finding out the variances.
Taking another case where the organisation has fixed the standard wage rate for labour/labor as per the law in force in the country. The law has been amended to hike the minimum wage rates. It is imperative that the organisation has to work under the changed conditions and has to thereby incur additional expenditure on account of higher rates of pay.
In this situation it would be appropriate to revise the standard to reflect the changes in the rates of pay so that effective comparisons can be made.
|Recalculating Standards vs Revising Standards|
Recalculating the standard is needed to enable us to have data which is straight away capable of being used for comparison with the actual data. This has no other relevance. In recalculating the standard, you are neither changing the labour/labor time per unit nor the labour/labor wage rate per hour. You are only obtaining the data or values for a production level other than the one that is given in the standard.
This concept should be clearly understood, since in majority of the cases, in solving problems what the student does is recalculating the standard and not revising the standard.
We need to revise the standard when there is an indication regarding the same.
You may not need to recalculate the standard !!!In solving problems, we can make use of formulae which would enable us to calculate all the labour/labor variances without recalculating the standard, by incorporating the adjustment factor in the formulae itself.
But, there is no such arrangement with regard to revision of standards. Where you are required to revise the standard, you have to.
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