do we use $6 to value the efficiency variance because 6$ includes $0.30 cost for idle time which will arise at 5% for every hour worked?
S
Sohaibb·
Hello Sir, I have checked whole syllabus of PM and ABC variance and Idle time variance are nowhere mentioned. Are they part of the syllabus?
K
Kamran·
Example 5 (d) IDLE TIME VAR.
First we have calculated act. idle time (8200-7740)=460, THATS RIGHT
Then we calculated Std. idle time (5% of 8200) = 410, THATS RIGHT TOO
Then we multiply the diff. of above two (i.e.50 hours) with 6 (i.e. std. cost of hours worked). Why we have not multiply that 50 with the cost of actual hour paid (i.e. 50,020/8200 = 6.1).
K
Kamran·
Example 5(b): Question asks "Calculate the effective standard cost per hours worked". While resolving the part (a) of this example, we determined that the total hours required on each unit is 8 hours out of which 7.6 is the total time worked and 0.4 is the idle time. And we figured out that we are paying $45.60 for 8 hours. However, while calculating the effective standard cost per hour worked, why we have divided 45.60 by 7.6 as earlier we have determined that 45.60 is for 8 hours. Why we have not calculated like (45.60/8)*7.6 ? As per my understanding this will give the cost of actual hours worked by eliminating the cost of idle time.
J
John MoffatTutor·
We are paying $45.60 and getting 7.6 hours of actual work. Therefore the effective cost per working hour is one divided by the other.
K
Kamran·
Dear John,
Example 5(a): "Example says that each unit will take 7.6 hours to make". It is not stated in the question whether the idle time is included in it or not. How we assumed that the idle time is not included in it and we added the same making total hours as 8.
J
John MoffatTutor·
We didn't assume anything. If it takes 7.6 hours to make something then this must be after any idle time.
N
Natalie·
Sir, if the company expects to pay for 8hrs (7.6hr/0.95) including 5% idle time of labor, can we directly say that the standard cost per hour worked is also $6 ($5.7/0.95). And the standard cost of actual production also $45,600 (1,000 units * 7.6hrs * $6/hr). Is it correct?
J
John MoffatTutor·
Yes, it is correct.
N
Natalie·
John, many thanks!!! :)
J
John MoffatTutor·
You are welcome.
H
Hermela·
also sir, why our cost card cost and the given cost differ? is there any difference between them on the product
H
Hermela·
sir i hope you are doing well.
when u do standard cost per hour why u divided the cost per unit by 7.6? why u dont make it 8 since 8$ is for all over cost idel and cost
J
JojoBeat·
Hey Sir,
Is there a difference if the question asks excess idle time variance and idle time variance?
From my understanding excess is the difference between the actual hrs paid minus actual hours worked and the actual hrs paid @ idle time %. And the variance is at effective std rate per hour worked.
But for idle time its only the difference between actual hrs paid and actual hrs worked at the normal std rate per hour worked.
J
John MoffatTutor·
There is a difference. The excess idle time variance is relevant when idle time has been budgeted for (and has therefore been taken into account when calculating the standard cost). If it has not been budgeted for then all idle time is a variance.
J
JojoBeat·
So if they say the 10% of idle time has not been factored into the cost per hour, we just take the standard rate per hour worked?
I
Ibrahim·
Hello John Sir,
How are you?
I hope you are good,
Thank you so much for your appreciated informative lesson lectures,
Thank you so much.
J
John MoffatTutor·
Thank you for your comment :-)
A
ashrugs1·
Sir,
the total budgeted idle hours for actual production will be 0.4 for every 7.6 hours. the budgeted total working hours is 7600, which means budgeted idle hours is 400.
total variance is 4420 as you said.
rate of pay is also ok, which is 3280(A)
below is what i think the idle and efficiency will variance will be.
actual idle time taken =(8200-7740) 460 hours
budgeted idle time actual = 400 hours
difference= (460-400)=60*5.7=342(A)
i think we should be comparing budgeted hours for actual production with actual results, right? and i chose 5.7 because that's the rate per hour. why would we take $6.0 which is the rate per hours worked?
and in my case the efficiency variance is 798 (A), i got that by ((7740-7600)*5.7.
We have calculated the idle time variance additionally, so why choose 6 again?
and the result is still tallying. 786+342+3240 gives 4420.
could you please tell me why I'm wrong, sir?
I'm really sorry for my bad English.
Thank you.
J
John MoffatTutor·
Your English is fine :-)
You are making two mistakes. For the idle time variance we compare the actual idle time (460 hours) with the standard (not the budget) idle time, which is 5% of the actual hours paid and so is 410 hours. So the difference is 50 hours.
For the efficiency variance, you are correct that we compare the actual hours worked (8,200 - 460 = 7,740) with the standard hours for the actual production 7,600.
Your other mistake is that both the idle time and the efficiency variances are looking at differences in working hours. Although the standard pay rate is $5.70 per hour, the standard cost for every hour actually worked is $6 as I explain in the lecture.
Work through the printed answer at the back of the lecture notes and it should then make sense.
A
ashrugs1·
Thank You, John. G'day.
J
John MoffatTutor·
You are welcome :-)
T
Toby·
Hi
Would it not make more sense for the cost card to be 8 hrs at $5.70 rather than 6.7hrs at $6?
In that case ashrugs1 calculations would fit well as 0.4 of the 8 hrs are idle, giving 4000 budgeted idle hrs with an actual adverse variance of 60 hours actually paid at $5.70. The real overspend due to adverse idle time would be $342.
The same will be for efficiency the actual 140 adverse hours worked actually paid at $5.70 would arise to an overspend of $798.
The totals do agree too at 798+342+3280=4420
J
Jonathan·
G'day John,
Just seeking some clarification if you don't mind.
Are you saying that the $5.70 is used only in the rate of pay variance because that is what is physically paid to the employee but for all other variances the rate of $6 is used?
Thanks in advance
J
John MoffatTutor·
Yes. The rate of pay variance is concerned with the actual amount paid per hour. The other variances are concerned with the cost per hour of work.
C
cawale06·
Thank you very much.
J
John MoffatTutor·
Thank you for your comment :-)
A
alie2018·
Thank you very much. Indeed it makes sense to budget for idle time since it is obvious that it will exist in a process. The variance is the difference between the actual and budgeted idle time.
First we have calculated act. idle time (8200-7740)=460, THATS RIGHT
Then we calculated Std. idle time (5% of 8200) = 410, THATS RIGHT TOO
Then we multiply the diff. of above two (i.e.50 hours) with 6 (i.e. std. cost of hours worked). Why we have not multiply that 50 with the cost of actual hour paid (i.e. 50,020/8200 = 6.1).
Example 5(a): "Example says that each unit will take 7.6 hours to make". It is not stated in the question whether the idle time is included in it or not. How we assumed that the idle time is not included in it and we added the same making total hours as 8.
when u do standard cost per hour why u divided the cost per unit by 7.6? why u dont make it 8 since 8$ is for all over cost idel and cost
Is there a difference if the question asks excess idle time variance and idle time variance?
From my understanding excess is the difference between the actual hrs paid minus actual hours worked and the actual hrs paid @ idle time %. And the variance is at effective std rate per hour worked.
But for idle time its only the difference between actual hrs paid and actual hrs worked at the normal std rate per hour worked.
How are you?
I hope you are good,
Thank you so much for your appreciated informative lesson lectures,
Thank you so much.
the total budgeted idle hours for actual production will be 0.4 for every 7.6 hours. the budgeted total working hours is 7600, which means budgeted idle hours is 400.
total variance is 4420 as you said.
rate of pay is also ok, which is 3280(A)
below is what i think the idle and efficiency will variance will be.
actual idle time taken =(8200-7740) 460 hours
budgeted idle time actual = 400 hours
difference= (460-400)=60*5.7=342(A)
i think we should be comparing budgeted hours for actual production with actual results, right? and i chose 5.7 because that's the rate per hour. why would we take $6.0 which is the rate per hours worked?
and in my case the efficiency variance is 798 (A), i got that by ((7740-7600)*5.7.
We have calculated the idle time variance additionally, so why choose 6 again?
and the result is still tallying. 786+342+3240 gives 4420.
could you please tell me why I'm wrong, sir?
I'm really sorry for my bad English.
Thank you.
You are making two mistakes. For the idle time variance we compare the actual idle time (460 hours) with the standard (not the budget) idle time, which is 5% of the actual hours paid and so is 410 hours. So the difference is 50 hours.
For the efficiency variance, you are correct that we compare the actual hours worked (8,200 - 460 = 7,740) with the standard hours for the actual production 7,600.
Your other mistake is that both the idle time and the efficiency variances are looking at differences in working hours. Although the standard pay rate is $5.70 per hour, the standard cost for every hour actually worked is $6 as I explain in the lecture.
Work through the printed answer at the back of the lecture notes and it should then make sense.
Would it not make more sense for the cost card to be 8 hrs at $5.70 rather than 6.7hrs at $6?
In that case ashrugs1 calculations would fit well as 0.4 of the 8 hrs are idle, giving 4000 budgeted idle hrs with an actual adverse variance of 60 hours actually paid at $5.70. The real overspend due to adverse idle time would be $342.
The same will be for efficiency the actual 140 adverse hours worked actually paid at $5.70 would arise to an overspend of $798.
The totals do agree too at 798+342+3280=4420
Just seeking some clarification if you don't mind.
Are you saying that the $5.70 is used only in the rate of pay variance because that is what is physically paid to the employee but for all other variances the rate of $6 is used?
Thanks in advance