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Hi Sir, I have a question regarding a F5 past exam question. CHAFF CO June 2008 Q1.
The question is as follows:In month 2 the following data applies:
Standard costs for 1 tonne of brown rice
• It takes 2 labour hours of work to produce 1 tonne of brown rice and labour is normally paid $18 per hour. Idle time is expected to be 10% of hours paid; this is not reflected in the rate of $18 above.The actual results for month 2 were as follows:
Actual production and sales were 8,000 tonnes
• – 12,000 tonnes of rice seeds were bought and used, costing $660,000
• – 15,800 labour hours were paid for, costing $303,360
• – 15,000 labour hours were workedCalculate the labour idle time variance.
The answer is:
Idle time: (800 – 1,580*)20 = 15,600 Fav
*10% of 15,800Or alternatively, Idle time: (800 – 1,580)18 = 14,040 Fav
Please help explain. Because from my understanding, shouldn’t it be 800 x $18 = $14,400 Adverse
Thank you Sir 🙂
I am afraid your understanding is wrong.
Idle time is being budgeted for, and when we have budgeted for idle time there is a variance if the actual idle time is more or less than the budgeted idle time. Here, the actual idle time is less than the standard idle time and therefore there is a favourable variance of the difference. (Your calculation would only have been correct if idle time had not been budgeted for, which is not the case in this question)
I explain the calculation of advanced idle time variances in my free lectures. The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
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