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, it is identified that the skilled labourers are in short supply and may not be 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.

Actual production has been carried on using the revised plan.

Output (_O) is in units, Times (_T) are in hrs, Rates (_R) are in monetary value per unit time and Costs (_C) are in monetary values.

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 in time and cost.

The data gives us the idea that there is variance in

• Labor Time

  	Standard	Actual
  Skilled Semi-Skilled Un Skilled	800 800 800	770 900 730
  Total	2,400	2,400

• Labor cost

  	Standard	Actual
  Skilled Semi-Skilled Un Skilled	16,000 12,000 8,000	15,400 13,500 7,300
  Total	36,000	36,200

The conclusion 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 standard data should be revised to incorporate this change and the revised data should be used for comparison with the actual data.

Data with the revised standard would be:

Output (_O) is in units, Times (_T) are in hrs, Rates (_R) are in monetary value per unit time and Costs (_C) are in monetary values.

On considering the revised standards we can see that the production was actually carried on with inefficiency with regard to overall cost. The cost incurred being 1,700 more (36,200 − 34,500) than the standard cost.

• Labor Time

  	Standard	Actual
  Skilled Semi-Skilled Un Skilled	600 900 900	770 900 730
  Total	2,400	2,400

• Labor cost

  	Standard	Actual
  Skilled Semi-Skilled Un Skilled	12,000 13,500 9,000	15,400 13,500 7,300
  Total	34,500	36,200

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 200 whereas there was a variation to the extent of 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.

In recalculating the standard, we are neither changing the labour/labor time per unit nor the labour/labor wage rate per hour. We are only obtaining the data or values for a production level other than the one that is given in the standard.

In majority of the cases, in solving problems what the student needs is recalculated standards and not a revised standard.

We need to revise the standard when there is information relating to the revision. The values relating to the revised standard are the ones to be used as representing the standard data.