Calculate Labor/Labour Variances.

Working table populated with the information that can be obtained as it is from the problem data

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.

The rest of the information that we make use of in problem solving is filled through calculations.

Labor/Labour Yield/Sub-Efficiency Variance is the difference between the Standard Cost of Actual Output and the Standard Cost of Actual Input

⇒ Labour/Labor Yield/Sub-Efficiency Variance (LYV/LSEV)

Standard Cost for Actual Output

Standard Cost of Actual Input

Formula in useful forms

Note

• ×

  AO

  SO

  replaces the suffix (AO) and ×

  AI

  SI

  replaces the suffix (AI) in calculations
• AI = PT_Mix and SI = ST_Mix.

For each Labour/Labor Type Separately

For all Labour/Labor Types together

Total Labour/Labor Yield/Sub-Efficiency variance

Labour/Labor Yield/Sub-Efficiency variance for the Mix

3. SC(AO) = ST(AO) × SR

4. SO(AO) = AO

7. SC(AI) = ST(AI) × SR

LYV/LSEV = SC(AO) − SC(AI)

Labour/Labor Yield/Sub-Efficiency Variance due to

Alternative

• Calculating Costs in a working table

  Calculate SC based on the given data in a working table and then use formulae based on costs.

  Working Table

  	Standard			Actual
  	for SO			Total		Idle	Productive
  	ST	SR	SC	AT	AR	IT	PT
  Skilled Semi-Skilled Unskilled	200 400 150	20 15 10	4,000 6,000 1,500	240 500 220	22 14 12	20 36 34	220 464 186
  Total	750		11,500	960		90	870
  Output	7,500 SO			7,200 AO

  SC = ST × SR

  LYV/LSEV = SC × (

  AO

  SO

  −

  AI

  SI

  )

• Using Formula with Times and Rates

  Using the time and rate data from the working table built using the problem data we may do all the working in the formula itself if we expand the formula using the relation cost = time × rate.

  Working Table

  	Standard			Actual
  	for SO			Total		Idle	Productive
  	ST	SR	SC	AT	AR	IT	PT
  Skilled Semi-Skilled Unskilled	200 400 150	20 15 10		240 500 220	22 14 12	20 36 34	220 464 186
  Total	750		11,500	960		90	870
  Output	7,500 SO			7,200 AO

  PT = AT − IT

  LYV/LSEV = ST × SR × (

  AO

  SO

  −

  AI

  SI

  )

  Even in this case, if we intend to use the formula for the mix, we need the SC_Mix for which we would need the SC values.

• Using Formula Based on Outputs

  Working Table

  	Standard				Actual
  	for SO				Total		Idle	Productive
  	ST	SR	SC	SC/UO	AT	AR	iT	PT
  Skilled	200	20	4,000	8 15	240	22	20	220
  Semi Skilled	400	15	6,000	0.8	500	22	36	464
  Unskilled	150	10	1,500	0.2	220	12	34	186
  Total	750	230 15	11,500	23 15	960		90	870
  Output	7,500 SO				7,200 AO

  SC/UO

  =

  SC SO

  LYV/LSEV = [AO − SO ×

  AI

  SI

  ] × SC/UO

• Productive Time

  Since labour/labor yiels/sub-efficiency variance is a part of labour/labor efficiency variance measured using productive time, the actual time considered in this variance is also Productive time.

  Thus, AI = ΣPT

  Where there is no idle time loss, the actual (total) time is productive time.

• Nature of Variance

  Based on the relations derived from the formulae for calculating LYV/LSEV, we can identify the nature of Variance

  • SC(AO) ___ SC(AI)

  • AO

    SO

    ___

    AI

    SI

  • ST(AO) ___ ST(AI)
  • AO ___ SO(AI)

  LYV/LSEV_Lab

  • SC(AO)_Lab ___ SC(AI)_Lab

  • AO

    SO

    ___

    AI

    SI

  • ST(AO)_Lab ___ ST(AI)_Lab
  • AO_Lab ___ SO(AI)_Lab

  LYV/LSEV_Mix

  • SC(AO)_Mix ___ SC(AI)_Mix

  • AO

    SO

    ___

    AI

    SI

  • ST(AO)_Mix ___ ST(AI)_Mix
  • AO_Mix ___ SO(AI)_Mix

  The variance would be

  • zero when =
  • Positive when >
  • Negative when <

  TLYV/LSEV

  Variance of Mix and Total Variance are the same.

  Variance_Mix provides a method to find the total variance through calculations instead of by just adding up individual variances.

• Individual Variances in Standard Cost Mix Ratio

  This variance measures the efficiency in deriving output out of the total labour/labor time used as a whole and not of individual labour/labor types.

  Any variation on account of varying the times of individual labour/labor types is revealed by the Labour/Labor Mix/Gang-Composition Variance.

  This can be identified from the fact that the calculation of the variance for individual labour/labor types is the equivalent of dividing the variance for the mix among the labour/labor types in the standard cost mix ratio (SCMR).

  LYV/LSEV_Lab = LYV/LSEV_Mix × standard cost mix proportion

  From the data in the illustration,

  Standard Cost Mix Ratio ~ SCMR

  sk : ss : us	=	SCsk : SCss : SCus
  	=	4,000 : 6,000 : 1,500
  	=	8 : 12 : 3
  	=	8 23 : 12 23 : 3 23

  LYV/LSEV_Mix = − 11,500

  LYV/LSEVsk	=	− 2,300 × 8 23
  	=	− 100 × 8
  	=	− 800

  LYV/LSEVss	=	− 2,300 × 12 23
  	=	− 100 × 12
  	=	− 1,200

  LYV/LSEVus	=	− 2,300 × 3 23
  	=	− 100 × 3
  	=	− 300

• Interpretation of the Variance

  For the labour/labor mix, for the output achieved

  Variance	Time input is	indicating
  None	as per standard	efficiency
  Positive	lesser than standard	efficiency
  Negative	greater than standard	inefficiency

  Similar conclusions can be drawn for the individual labour/labor types based on individual times input. However, it should be noted that the output is a result of the mix and measuring the influence of individual labour/labor times is inappropriate.

  The individual variances data would be of little help in taking corrective actions.

• Who is answerable for the Variance?

  Since this variance is on account of more or less yield for the input used, the people or department responsible for managing the production operations (say manufacturing department) is answerable for this variance.

• LYV/LSEV = LEV − LMV/GCV
• LYV/LSEV = LCV − LRPV − LMV/GCV − LITV

Verification