Labour/Labor Variances :: Accounting (Recording) Journal Entries

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Using 7 Ledger Accounts

This the most detailed methodology for recording the labour/labor variances. All the variances are recorded in this method.

Ledger Accounts Used

The ledger accounts used for recording the transactions are

Labour/Labor Rate of Pay Variance a/c (LRPV)
Labour/Labor Mix/Gang-Composition Variance a/c (LMV/GCV)
Labour/Labor Yield Variance a/c (LYV/LSEV/LSUV)
Labour/Labor Net Efficiency/Usage Variance a/c (LEV/LUV_(N))
Labour/Labor Idle Time Variance a/c (LITV)
Labour/Labor Gross Efficiency/Usage Variance a/c (LEV/LUV_(G))
Labour/Labor Cost Variance a/c (LCV)

Rate of Pay Variance

The Rate of Pay variance is identified and recorded at the time the wages are being recorded in the cost ledgers.

The transactions with regard to accounting for labour/labor rate of pay variance would be:

Recording Labour/Labor Rate of Pay Variance.
Transferring the Normal part of the variance to the relevant accounts.
Transferring the abnormal part of the variance to "LCV a/c".

When the Variance is Adverse

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	WLC a/c LRPV a/c To GLA a/c	Dr Dr	– – –	xxx xxx	xxx
01.	–	[For the wages paid and payable and the adverse rate of pay variance thereon identified and recorded at the time of recording wages in the cost ledgers.]		– – –	xxx xxx	xxx
02.	–	WIPC a/c FGLC a/c COS a/c To LRPV a/c	Dr Dr Dr	– – – –	xxx xxx xxx	xxx
02.	–	[For the transfer/adjustment of normal part of the adverse rate of pay variance to the relevant accounts.]		– – – –	xxx xxx xxx	xxx
03.	–	LCV a/c To LRPV a/c	Dr	– –	xxx	xxx
03.	–	[For the transfer of abnormal part of the unfavorable rate of pay variance to the Labour/Labor Cost Variance account.]		– –	xxx	xxx

When the Variance is Favorable

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	WLC a/c To GLA a/c To LRPV a/c	Dr	– – –	xxx	xxx xxx
01.	–	[For the wages paid or payable and the favourable price variance thereon identified and recorded at the time of recording wages in cost ledgers.]		– – –	xxx	xxx xxx
02.	–	LRPV a/c To WIP a/c To FGLC a/c To COS a/c	Dr	– – – –	xxx	xxx xxx xxx
02.	–	[For the transfer/adjustment of normal part of the favorable rate of pay variance to the relevant accounts.]		– – – –	xxx	xxx xxx xxx
03.	–	LRPV a/c To LCV a/c	Dr	– –	xxx	xxx
03.	–	[For the transfer of abnormal part of the favourable rate of pay variance to the "LCV a/c".]		– –	xxx	xxx

Idle Time Variance

The Idle time variance is identified and recorded at the time the wages are being seggregated as to direct or indirect. They may also be identified when the factory overheads are being absorbed into production as well as during and on the completion of the production process.

The following transactions can be identified with regard to accounting for labour/labor rate of pay variance.

Recording Labour/Labor Idle Time Variance.
Transferring the variance to "LCV a/c".

When the Variance is Adverse

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	LITV a/c To WLC a/c	Dr	– –	xxx	xxx
01.	–	[For the abnormal loss of idle time not allocated either as direct or indirect wages identified and recorded from the wage ledger control account.]		– –	xxx	xxx
(Or)	–	LITV a/c To FOHC a/c	Dr	– –	xxx	xxx
(Or)	–	[For the abnormal loss of idle time from the labor time allocated as indirect labour to factory identified and recorded from the factory overhead control account.]		– –	xxx	xxx
(Or)	–	LITV a/c To WIP a/c	Dr	– –	xxx	xxx
(Or)	–	[For the abnormal loss of idle time from the labor time allocated as direct labour identified and recorded from the work in progress control account.]		– –	xxx	xxx
02.	–	LCV a/c To LITV a/c	Dr	– –	xxx	xxx
02.	–	[For the transfer of idle time variance to the Labour/Labor Cost Variance account.]		– –	xxx	xxx

When the Variance is Favorable

This variance is always negative or unfavorable and cannot be positive or favoourable.

Mix/Gang-Composition Variance

This may be identified at the time of allocating labour/labor time as to direct and indirect. It is generally identified and recorded after the production is completed i.e. at the time of transfer of completed production to finished goods stock.

Except for the point at which the variance is recorded, the transactions relating to these two variances need similar entries for recording.

Recording Mix/Gang-Composition Variance.
Transferring the normal part of the variances to the relevant accounts.
Transferring the abnormal part of the variances to "LEV/LUV a/c".

When the Variance is Adverse

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	WIP a/c FOHC a/c LMV/GCV a/c To WLC a/c	Dr Dr Dr	– – – –	xxx xxx xxx	xxx
01.	–	[For the value of direct and indirect labour/labor and the adverse mix variance thereon identified and recorded at the time of allocation of labour/labor cost.]		– – – –	xxx xxx xxx	xxx
(Or)	–	FGLC a/c LMV/GCV a/c To WIP a/c	Dr Dr	– – –	xxx xxx	xxx
(Or)	–	[For the value of goods produced and the adverse labour/labor mix variance thereon identified and recorded at the time of completion of production.]		– – –	xxx xxx	xxx
02.	–	WIPC a/c FGLC a/c To LMV/GCV a/c	Dr Dr	– – –	xxx xxx	xxx
02.	–	[For the transfer/adjustment of normal part of the adverse mix variance to the relevant accounts.]		– – –	xxx xxx	xxx
03.	–	LUV/LEV a/c To LMV/GCV a/c	Dr	– –	xxx	xxx
03.	–	[For the transfer of abnormal part of the unfavorable mix variance to the Labour/Labor Efficiency/Usage Variance account.]		– –	xxx	xxx

When the Variance is Favorable

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	WIP a/c FOHC a/c To WLC a/c To LMV/GCV a/c	Dr	– – – –	xxx xxx	xxx xxx
01.	–	[For the value of direct and indirect labour/labor and the favourable mix/gang-composition variance thereon identified and recorded at the time of allocation of labour/labor cost.]		– – – –	xxx xxx	xxx xxx
(Or)	–	FGLC a/c To WIP a/c To LMV/GCV a/c	Dr	– – –	xxx	xxx xxx
(Or)	–	[For the value of goods produced and the favorable mix/gang-composition variance thereon identified and recorded at the time of completion of production.]		– – –	xxx	xxx xxx
02.	–	LMV/GCV a/c To WIP a/c To FGLC a/c To COS a/c	Dr	– – – –	xxx	xxx xxx xxx
02.	–	[For the transfer/adjustment of normal part of the favorable mix/gang-composition variance to the relevant accounts.]		– – – –	xxx	xxx xxx xxx
03.	–	LMV/GCV a/c To LUV/LEV a/c	Dr	– –	xxx	xxx
03.	–	[For the transfer of abnormal part of the favourable mix/gang-composition variance to the Labour/Labor Usage/Efficiency Variance account.]		– –	xxx	xxx

Yield Variance

This is identified and recorded after the production is completed i.e. at the time of transfer of completed production to finished goods stock.

Except for the point at which the variance is recorded, the transactions relating to these two variances need similar entries for recording.

Recording Yield Variance.
Transferring the normal part of the variances to the relevant accounts.
Transferring the abnormal part of the variances to "LEV/LUV a/c".

When the Variance is Adverse

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	FGLC a/c LYV a/c To WIP a/c	Dr Dr	– – –	xxx xxx	xxx
01.	–	[For the value of goods produced and the adverse yield variance thereon identified and recorded at the time of completion of production.]		– – –	xxx xxx	xxx
02.	–	WIPC a/c FGLC a/c COS a/c To LYV a/c	Dr Dr Dr	– – – –	xxx xxx xxx	xxx
02.	–	[For the transfer/adjustment of normal part of the adverse yield variance to the relevant accounts.]		– – – –	xxx xxx xxx	xxx
03.	–	MUV a/c To LYV a/c	Dr	– –	xxx	xxx
03.	–	[For the transfer of abnormal part of the unfavorable yield variance to the Labour/Labor Efficiency/Usage Variance account.]		– –	xxx	xxx

When the Variance is Favorable

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	FGLC a/c To WIP a/c To LYV a/c	Dr	– – –	xxx	xxx xxx
01.	–	[For the value of goods produced and the favourable/favorable yield variance thereon identified and recorded at the time of completion of production.]		– – –	xxx	xxx xxx
02.	–	LYV a/c To WIP a/c To FGLC a/c To COS a/c	Dr	– – – –	xxx	xxx xxx xxx
02.	–	[For the transfer/adjustment of normal part of the favorable yield variance to the relevant accounts.]		– – – –	xxx	xxx xxx xxx
03.	–	LYV a/c To LUV a/c	Dr	– –	xxx	xxx
03.	–	[For the transfer of abnormal part of the favourable yield variance to the Labour/Labor Usage/Efficiency Variance account.]		– –	xxx	xxx

Usage/Efficiency Variance

Where it is a Consolidation Account

The total variance in the Usage/Efficiency Variance account represents abnormal variance. This is to be transferred to the Cost Variance account.

There is only one transaction in such a case.

Transferring Abnormal Variance to Cost Variance Account.

When the Variance is Adverse

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	LCV a/c To LEV/LUV a/c	Dr	– –	xxx	xxx
01.	–	[For the total adverse usage variance transferred to cost variance account.]		– –	xxx	xxx

When the Variance is Favorable

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	LEV/LUV a/c To LCV a/c	Dr	– –	xxx	xxx
01.	–	[For the total favourable/favorable usage variance transferred to cost variance account.]		– –	xxx	xxx

Cost Variance

Where it is a Consolidation Account

The total variance in the Cost Variance account represents abnormal variance. This is to be transferred to the Costing Profit and Loss account.

There is only one transaction in such a case.

Transferring Abnormal Variance to Costing Profit and Loss Account.

When the Variance is Adverse

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	C P&L a/c To LCV a/c	Dr	– –	xxx	xxx
01.	–	[For the total adverse cost variance transferred to costing profit and loss account.]		– –	xxx	xxx

When the Variance is Favorable

Journal in the books of M/s __ for the period from ____ to _____
Date	V/R No.	Particulars		L/F	Debit Amount (in Rs)	Credit Amount (in Rs)
01.	–	LCV a/c To C P&L a/c	Dr	– –	xxx	xxx
01.	–	[For the total favourable/favorable cost variance transferred to costing profit and loss account.]		– –	xxx	xxx

Using 5 Ledger Accounts

In the following situations, we find only the Labour/Labor Efficiency/Usage Variance a/c being used without the use of Labour/Labor Mix/Gang-Composition Variance or the Labour/Labor Yield/Sub-Efficiency/Sub-Usage accounts.

Where there is only one labour/labor type in use all efficiency/usage variance is nothing but yield variance. As such there is no need to measure the yield variance separately.

Where the organisation does not intend to segregate the efficiency/usage variance into mix variance and yield variance, it would avoid using the mix and yield variance accounts.
This is possible since the efficiency/usage variance can be calculated straight away using a formula. In such a case, the usage/quantity variance account would not be a consolidation account.

Ledger Accounts Used
The ledger accounts used for recording the transactions are

Labour/Labor Rate of Pay Variance a/c (LRPV)

Labour/Labor Net Efficiency/Usage Variance a/c (LEV/LUV_(N))

Labour/Labor Idle Time Variance a/c (LITV)

Labour/Labor Gross Efficiency/Usage Variance a/c (LEV/LUV_(G))

Labour/Labor Cost Variance a/c (LCV)

In such a case, the transactions would be

Price variance
Transactions relating to rate of pay variance and recording them would be the same as when 7 ledger accounts are used.

Recording the Efficiency/Usage variance.

Transferring Normal part of the Efficiency/Usage Variance to the relevant accounts.

Transferring Abnormal part of the Efficiency/Usage Variance to the Cost Variance account.

Idle Time variance
Transactions relating to idle time variance and recording them would be the same as when 6 ledger accounts are used.

Cost variance
Transactions relating to cost variance and recording them would be the same as when 7 ledger accounts are used.

Efficiency/Usage variance

When the Variance is Adverse

Journal in the books of M/s __ for the period from ____ to _____

Date V/R
No. Particulars L/F Debit Amount
(in Rs) Credit Amount
(in Rs)

01. – FGLC a/c
LEV/LUV a/c
To WIP a/c Dr
Dr –
–
– xxx
xxx

xxx

[For the value of goods produced and the adverse efficiency/usage variance thereon identified and recorded after completion of production.]

02. – WIP a/c a/c
FGLC a/c
COS a/c
To LEV/LUV a/c Dr
Dr
Dr –
–
–
– xxx
xxx
xxx

xxx

[For the transfer/adjustment of normal part of the adverse efficiency/usage variance to the relevant accounts.]

03. – LCV a/c
To LEV/LUV a/c Dr –
– xxx
xxx

[For the transfer/adjustment of normal part of the adverse efficiency/usage variance to the relevant accounts.]

When the Variance is Favorable

Journal in the books of M/s __ for the period from ____ to _____

Date V/R
No. Particulars L/F Debit Amount
(in Rs) Credit Amount
(in Rs)

01. – FGLC a/c
To WIP a/c
To LEV/LUV a/c Dr –
–
– xxx
xxx
xxx

[For the value of goods produced and the favourable efficiency/usage variance thereon identified and recorded at the time of completion of production.]

02. – LEV/LUV a/c
To WIP a/c
To FGLC a/c
To COS a/c Dr –
–
–
– xxx
xxx
xxx
xxx

[For the transfer/adjustment of normal part of the favorable efficiency/usage variance to the relevant accounts.]

03. – LEV/LUV a/c
To LCV a/c Dr –
– xxx
xxx

[For the transfer of abnormal part of the favourable efficiency/usage variance to the Labour/Labor Cost Variance account.]

Using a Single Ledger Account

Though it is theoretically possible to find and therefore record the total variance using only the "Labour/Labor Cost Variance a/c." it does not sound prudent. Deciding the normal and abnormal part of the variance would not be possible without errors in such a case.
The transactions that would be relevant to this account would be

Recording the total Cost Variance

Transferring Normal part of the Variance to the relevant accounts.

Transferring Abnormal part of the Variance to the Costing Profit & Loss account.

Cost Variance

When the Variance is Adverse

Journal in the books of M/s __ for the period from ____ to _____

Date V/R
No. Particulars L/F Debit Amount
(in Rs) Credit Amount
(in Rs)

01. – FGLC a/c
LCV a/c
To WIP a/c Dr
Dr –
–
– xxx
xxx

xxx

[For the value of goods produced and the adverse cost variance thereon identified and recorded at the time of completion of production.]

02. – WIP a/c
FGLC a/c
COS a/c
To LCV a/c Dr
Dr
Dr –
–
–
– xxx
xxx
xxx

xxx

[For the transfer/adjustment of normal part of the adverse cost variance to the relevant accounts.]

03. – CP&L a/c
To LCV a/c Dr –
– xxx
xxx

[For the transfer of abnormal part of the unfavorable cost variance to the Costing P&L a/c.]

When the Variance is Favorable

Journal in the books of M/s __ for the period from ____ to _____

Date V/R
No. Particulars L/F Debit Amount
(in Rs) Credit Amount
(in Rs)

01. – FGLC a/c
To WIP a/c
To LCV a/c Dr –
–
– xxx
xxx
xxx

[For the value of goods produced and the favourable cost variance thereon identified and recorded at the time of completion of production.]

02. – LCV a/c
To WIP a/c
To FGLC a/c
To COS a/c Dr –
–
–
– xxx
xxx
xxx
xxx

[For the transfer/adjustment of normal part of the favorable cost variance to the relevant accounts.]

03. – LCV a/c
To CP&L a/c Dr –
– xxx
xxx

[For the transfer of abnormal part of the favourable cost variance to the Costing P & L a/c.]

Author Credit : The Edifier