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Hi John
I understand that with idle time we work out the hourly rate by multiplying the standard rate per hour by the percentage of time actually worked. Say $10*0.95 (assumes a stn idle time of 5%). So the idle time variance I get.
But where does this fit into the overall efficiency variance.
Do we take hours actually worked vs budgeted hours per unit (flexed to production levels) and multiply by:
a) the standard rate per hour?
or
b) the working rate per hour (adjusted for idle time)?And likewise, if this was a rate variance question with idle time thrown in, how would we go about solving it?
I am trying to get my head around it logically so I can understand what I am doing.
Thank you very much for your help.
The free lecture on advanced idle time variances does go through all of this!!
For the efficiency variance you always compare the actual hours worked with the standard hours for the actual production, and cost out at the standard rate per working hour (which would not be $10 x 0.95 if $10 was the pay rate, it would be $10 / 0.95)
The labour rate variance is always calculated in the normal way. i.e. the actual hours paid, at the difference between the actual pay rate and the standard pay rate.
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