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Hello,
I have a question regarding the following:
Operation B, in a factory, has a standard time of 15 minutes. The standard rate of pay for operatives is $10 per hour. The budget for a period was based on carrying out the operation 350 times. It was subsequently realised that the standard time for Operation B included in the budget did not incorporate expected time savings from the use of new machinery from the start of the period. The standard time should have been reduced to 12 minutes. Operation B was actually carried out 370 times in the period in a total of 80 hours. The operatives were paid $850.
I have done the calculations but what I do not get is why do I use the actual operations when I calculate the labor efficiency?
I use the following formula(AH-RH)*SR so I get = (80-12/60*350)*10 and apparently the solution is not to multiply it by 350 but by 370 and I do not get why, could you please help me understand it?
Thank you in advance!
The labour efficiency variance is calculated by subtracting the standard hours from the actual hours worked and then multiplying it by the standard rate.
So it was actually carried out 370 times in a total of 80 hours. Therefore, you need to use the actual number of operations (370) when calculating the labour efficiency variance, not the budgeted number of operations (350).
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