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I am confused with labour efficiency variance from question CHAFF CO (JUNE 08 EXAM)
I know how to calculate rate per hour(20), but i dont understad why we use them in this particular variance and why we deduct 16000(8000*2) from 15000. So I know how this variance calculated but i dont understand why is that.I hope you understant me…
Answer from revision kit
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.
15,000 labour hours were workedLabour efficiency: (15,000 – 16,000)20 = 20,000 Fav
thank you for help
Although the standard rate of pay is $18 per hour, because of the idle time expected of 10% it means that every hour actually worked should cost $20.
So….if we work more or less that the standard time we will be losing or saving at the rate of $20 per hour.
Here we produced 8,000 units and so we should have worked 8,000 x 2 = 16,000 hours.
We actually worked 15,000 hours and so we were more efficient and saved 1,000 hours.
At the standard work rate of $20 per hour, this saves us $20,000.Hope that helps 🙂
(If you have not already watched it, then my lecture on idle time variances might help – you can find the link to it on the main F5 page)
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