#### Idle Time Variances: Please note that this lecture relates to Chapter 14 of the Course Notes and not Chapter 13 as stated in the lecture.The example is on page 84.

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maas says

Hi Sir,

If Efficiency variance is favorable, which rate should we use for calculation. Please advise, Thanks

John Moffat says

When calculating the efficiency variance, you use the rate per working hour whether it is favourable or adverse.

maas says

Thank you sir

favour says

Sir, assist me on this:

A division of a company is capable of making two products – X and Y.

They can sell both products externally as follows:

X Y

External selling price 80 100

Variable cost 60 70

Contribution per unit 20 30

Labour hours per unit 5 hours 10 hours

The company has limited labour hours available, and another division requires product Y.

What is the minimum transfer price that should be charged by the division in order to achieve goal congruence?

John Moffat says

This question has nothing at all to do with idle time variances!

You must ask this question in the Paper F5 Ask the Tutor Forum – this space is for comments on the lecture, not for asking questions about other topics.

(Have you watched the lecture on transfer pricing? If not, then you must, because I work through this very example in the free lecture and you cannot expect me to type out my lecture.)

favour says

Sir, is the answer correct?

Y plc produces widgets.

Each widget should take 0.5 hours to make. The standard rate of pay is $10 per hour. Idle time is expected to be 5% of hours paid.

They actually produce 10,800 units. They pay $50,000 for 6,000 hours, of which 330 hours are idle.

What is the labour efficiency variance?

Answer:

10800 units was expected to be produced in 10800*.5= 5400hrs

But took. 6000hrs

Efficiency variance= 600hrs

John Moffat says

No. Variances are measured in $’s not in hours!

Also, for the efficiency variance you compare the standard hours with the hours actually worked. The standard hours are indeed 5400. However they did not work 6,000 hours – they only worked 5670 hours.

So the efficiency variance is 5670 – 5400 = 270 x $10.526 = $2842 (adverse)

favour says

Thank you sir.

favour says

Sir, assist me on this question:

Y plc produces widgets.

Each widget should take 0.5 hours to make. The standard rate of pay is $10 per hour. Idle time is expected to be 5% of hours paid.

They actually produce 10,800 units. They pay $50,000 for 6,000 hours, of which 330 hours are idle.

What is the excess idle time variance?

John Moffat says

They paid for 60,000 hours and therefore the standard idle time is 5% x 60000 = 300 hours.

The actual idle time is 330 hours, and therefore there is an excess of 30 hours.

The standard pay rate is $10 per hour.

So the standard rate per working hour is 10 / 0.95 = $10.526

So the idle time variance is 30 x $10.526 = $316 (A)

favour says

Thanks sir

ayeodele says

how did u get 7740 hrs

John Moffat says

Have you downloaded the free Course Notes? (If not then it is pointless watching the lectures – it says above every lecture that it is based on the Course Notes and gives a link to download them)

If you have downloaded them then you will see in the question “Hours worked: 7740 hours”.

sunday says

Good one but the work rate and pay rate seems confusing. I know you will advice that I should accept it like that.

Hassaanah says

hi very good lecture

but am just a little confused i know this formula for labour variances:

actual hour *actual rate = a

50020

rate variance = b-a= 46440-50020 =3580(A)

actual hour * standard rate = b

7740 * 6 =46440

efficiency variance = c-b= 45600-46440=840(A)

standard hour *std rate = c

7600 * 6 =45600

can you check my error and tell me plz?

when i put actual hour=8200 my effeciency variance change plz tell me as soon as possible what is my error?

thnx for the lecture

John Moffat says

I am sorry, but without knowing the figures in the question it is not possible for me to check

Hassaanah says

QUESTION

A company budgets that each unit will take 7.6 hours to make.

It budgets on paying workers at the rate of $5.70 per hour,and that 5% of the hours paid for will be idle.

The actual results(for production of 1000 units)are:

Hours paid : 8200 hours at a cost of $50020

Hours worked: 7740 hours

required:

the total variance into rate of pay , idle time ,and efficiency variances

John Moffat says

The rate variance is (8200 x 5.70) – 500020 = 3280 (A)

The efficiency variance is (7740 – (1000 x 7.6)) x 6 = 840 (A)

The excess idle time variance is ((8200 – 7740) – (5% x 8200)) x 6 = 300 (A)

Hassaanah says

i just want to know why my formula do not get the same answer please tell me error

Hassaanah says

is the formula i used correct or i made an error because i always use this formula and get the right answer but for this one i don’t get it right why?

John Moffat says

I do not use formula – you should be able to check yourself where you went wrong.

Hassaanah says

okay thanks i think i will use your way to make sure my answer will be right in exams tomorrow..

thanks once more for all the lecture

shadir says

Dear John,

I really appreciate your effort with this, Your lecture is very brief and to the point. This has actually given me some knowledge.

Would you be able to upload a lecture where you would be doing a full exam paper please? A latest one?

Even we know the scenario and how to do a particular question, I’m finding it difficult to attempt exam questions.

Your support is highly appreciable.

Thanks & regards.

opentuition_team says

Check out Revision Lectures: http://opentuition.com/acca/f5/f5-revision-kit/ based on past exam questions…

anam says

Hi, can we simply calculate labour cost p.u in standard cost card…… by adding 5% of 7.6 (7.6+0.38=7.98 hrs) it also almost gives right ans i.e 8 hrs

John Moffat says

Sorry, but no! It might nearly give the right answer, but it is not completely correct.

Killqa says

Dear sir, I need greater clarity of the difference between work rate and pay rate and the when to use.

Many thanks!

John Moffat says

The pay rate is the actual rate that they pay per hour.

The work rate is the effective cost per working hour.

work rate = pay rate x std hour paid per unit / std hours worked per unit.

You use the pay rate when calculating the rate of pay variance

You use the work rate when calculating the efficiency variance and the excess idle time variance.

Carmel says

Hi John,

Sorry to ‘labour’ the point (no pun intended!) but I’m not clear why the work rate was not required in Chapter 13 Example 1 when we worked out the Idle Time variance and Efficiency variance but it was required for Example 5, chapter 14.

And..how will we know the difference in the exam?

Thanks

Carmel

John Moffat says

The reason is that in the first example no idea time was budgeted for (and therefore all of the idle time was a variance and the ‘work rate’ was the same as the ‘pay rate’.

In the second example, idle time was budgeted for and therefore we expected the working hours to cost more than the pay rate.

In the exam, you just have to check whether or not idle time was budgeted for.

Gurpreet says

Hello , idle time is deleted in the new syllabus of June 2013. Please advice.

robbieacca1 says

gutted, just watched it!

John Moffat says

Just as well you watched it!!

Be ungutted and read my comment below

robbieacca1 says

Cheers, thanks. Great resource btw

John Moffat says

Idle time is still examinable, as are all the ‘basic’ variances.

They are assumed knowledge from Paper F2 and can still be asked.

There will certainly not be a full question on basic F2 variances, but any of them may still be asked.

The Course Notes make this very clear (as has the examiner).

Gurpreet says

Thanks

harryamoatey says

pls i want to know what if the extra idle time was favorable, will u still cost it at the work rate.

nesherina says

understandable lecture. thanks much.

Miss A.. says

Dear Sir, in the above example we have used work rate while calculating labour idle time variance.But what to do if we are not given work of rate or we don’t have enough information in the question to calculate it.Would then we use pay rate while calculating labour idle time variance??

Miss A.. says

@Miss A.., work rate* , NOT work of rate

John Moffat says

@Miss A.., You will be given enough information in the question to be able to calculate the ‘work rate’.

riannaramrick says

Nice

shab2312 says

Very very helpful! Thanks OT

accamani says

thank you very much.it was really fruitful to me.thanks once again.

manyerere27 says

i can’t see the lecture, what shall i do