Labour/Labor Variances :: using cost data when time and wage rates are not known

... From Page L:12
Values given :: Quantity, Price not given  
 
There may be situations when you would be required to solve problems using data relating to values, where quantities and prices are not given/known and it would not be possible to derive that data even.

Variance is nothing but a difference between two values, i.e. two costs to be more specific.
⇒ Variance = Value1 − Value2
⇒ Variance = (Time1 × Rate1) − (Time2 × Rate2)       [Since cost/value = Time × Rate]

Formulae interpreted in terms of value

It would be easy to recollect the formulae in the format (a × b) − (c × d). You can always identify the values relevant to the variance by interpreting these formulae.

(1) LCV =
(ST × SR)(AT(G) × AR) (Or)
({
AO
SO
× ST } × SR )
(AT(G) × AR)
= Standard Cost of Standard Time − Actual Cost (of Actual Time)
(Or) = Standard Cost of Standard Time for Actual Output − Actual Cost (of Actual Time)

(2) LEV/LUV(N) =
(ST × SR)(AT(N) × SR) (Or)
({
AO
SO
× ST } × SR )
(AT(N) × SR)
= Standard Cost of Standard Time − Standard Cost of Actual Net Time
(Or) = Standard Cost of Standard Time for Actual Output − Standard Cost of Actual Net Time

(3) LRPV = (AT(G) × SR)(AT × AR)
= Standard Cost of Actual Gross Time − Actual Cost of Actual Gross Time

(4) LITV = − AT(Ab) × SR
= − (Standard Cost of Abnormal Idle Time)

(5) LMV/GCV =
(ST × SR)(AT(N) × SR) (Or)
({
AT(N)Mix
STMix
× ST } × SR )
(AT(N) × SR)
= Standard Cost of Standard Time − Standard Cost of Actual Net Time
(Or) = Standard Cost of Standard Time for Actual Input − Standard Cost of Actual Net Time

(6) LYV/LSEV/LSUV =
(AO × SR(SO))(SO × SR(SO))
(Or) (AO × SR(SO))
({
AT(N)Mix
STMix
× SO } × SR(SO) )
= Standard Cost of Actual Output − Standard Cost of Standard Output
(Or) = Standard Cost of Actual Output − Standard Cost of Standard Output for actual input

(*) SR(SO) =
SCMix
SO
=
Standard Rate of Standard Output/Yield (Or)
Standard Cost
Standard Output

LCV = (1) − (2); LRPV = (1) − (3) Fiasco  
 
This is an explanation to one of the other methods that students generally use in problem solving.

Caution/Warning:

If you think that too many modes would distort your understanding, you are better advised to avoid reading this. The only reason it is being given is to make you aware of all the possible angles in the learning process.

Actual Cost

(01) Actual Labour/Labor Cost.
(AT(G) × AR)

Standard Cost

(02) of Standard Time for actual output.
({
AO
SO
× ST } × SR )

(03) of Standard Time for Actual (Net) Mix.
({
AT(N)Mix
STMix
× ST } × SR )

(04) of Actual (Gross) Time.
(AT(G) × SR)

(05) of Actual (Net) Time.
(AT(N) × SR)

(06) of Actual (Idle) Time.
(AT(Id/Ab) × SR)

(07) of Actual Output.
(AO × SR(SO))
(08) Standard Output for Actual (Net) Time.
({
AT(N)Mix
STMix
× ST } × SR(SO) )

(09) of Output per unit
SCMix
SO

The above figures may be taken in any order. The formulae are to be remembered based on the order in which the above terms are written.

(1) LCV = (ST × SR)(AT(G) × AR) LCV = (02) − (01)
(2) LEV/LUV(G) = (ST × SR)(AT(N) × SR) LUV = (02) − (05)
(3) LRPV = (AT(G) × SR)(AT(G) × AR) LRPV = (04) − (01)
(4) LMV/GCV = (ST × SR)(AT(G) × SR) LMV/GCV = (03) − (05)
(5) LYV/LSEV/LSUV = (AO × SR(SO))(SO × SR(SO)) LYV = (07) − (08)

The pit fall

You have to attribute (01), (02), (03), (04),.... in a particular order and then remember the variances based on that. You may commit a mistake either in considering the order or in applying the same for the formulae.

If you have understand the logic behind the formulae, you don't even need to mug up the formulae. You can recollect or derive them on a fly. Try working out all the problems with the same set of formulae which are capable of being used in all cases.

We recommend using the formulate that are capable of being used in all cases.

Author Credit : The Edifier ... Continued Page L:14

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