Under the rate of pay, why is it wrong to have used $8 rather than $5.7 as per the question. Since we’re aware we’ll be paying for 5% idle time regardless of how many units produced, why aren’t we considering that in analyzing the rate of pay?

I’m worried as to why we didn’t factor the 5% idle time under the standard efficiency since we were aware from scratch there will be idle time. Why is it wrong to use 8hrs x 1000hrs?

Thank you sir for the lecture.
This might be a very absurd and silly question, but I need to ask you, when we calculate the total hours to be paid for in the part (a) of the question, it gives an answer of 7.98hrs. And when we multiply it with the rate per hour, with this number of hours (without rounding off) it gives a value of $45.49
My question is when is it necessary for us to round off to two decimal places and when should we round it off to 5 decimal places, and when it is necessary for us to round it off to the neared ones.

But why do you want to compare with actual labour hours?

For all variances, the total variance is the difference between the actual cost and the standard cost for the actual production – that is for all variances, not just for labour.

The idle time only becomes relevant when we analyse the total variance as I do in the lecture.

Because for the pay variance all we are concerned with is whether or not we pay the correct wages per hour (which should be 5.70 per the question).

For the other two we are gaining or losing working hours and the cost per working hour is higher (because the budgeted idle time is taken into account).

Ajibola says

Under the rate of pay, why is it wrong to have used $8 rather than $5.7 as per the question. Since we’re aware we’ll be paying for 5% idle time regardless of how many units produced, why aren’t we considering that in analyzing the rate of pay?

Ajibola says

Oh.. I’ve seen my error. Don’t bother. The duration of idle time affects the hours per unit, not the standard pay per unit.

Ajibola says

I’m worried as to why we didn’t factor the 5% idle time under the standard efficiency since we were aware from scratch there will be idle time. Why is it wrong to use 8hrs x 1000hrs?

John Moffat says

I am pleased that you have sorted it out 🙂

EmanWahied says

Thank you sir for the lecture.

This might be a very absurd and silly question, but I need to ask you, when we calculate the total hours to be paid for in the part (a) of the question, it gives an answer of 7.98hrs. And when we multiply it with the rate per hour, with this number of hours (without rounding off) it gives a value of $45.49

My question is when is it necessary for us to round off to two decimal places and when should we round it off to 5 decimal places, and when it is necessary for us to round it off to the neared ones.

shyamkumar says

Sir,

For calculating Total lab variance, you’ve compared Actual hours @ Actual Cost with Std cost for Act prdn… 1000u @ $45.6.

Well I tried comparing with Actual Lab hours paid @ Rate per hour

– 8200 @ $5.70

Please correct me..

John Moffat says

But why do you want to compare with actual labour hours?

For all variances, the total variance is the difference between the actual cost and the standard cost for the actual production – that is for all variances, not just for labour.

The idle time only becomes relevant when we analyse the total variance as I do in the lecture.

shyamkumar says

Thank you Sir for the clarification.

John Moffat says

You are very welcome 🙂

Meg says

Hi John,

Please can you explain why $5.70 was used in the rate of pay variance whereas $6.00 was used in the efficiency and idle time variances?

Thank you,

Meg

John Moffat says

Because for the pay variance all we are concerned with is whether or not we pay the correct wages per hour (which should be 5.70 per the question).

For the other two we are gaining or losing working hours and the cost per working hour is higher (because the budgeted idle time is taken into account).

Meg says

Makes sense, thank you so much 🙂

John Moffat says

You are welcome 🙂