CIMA BA2 Syllabus C. PLANNING AND CONTROL - Labour Variances - Notes 4 / 9
Labour Variances
The total labour variance can be subdivided between labour rate variance and labour efficiency variance.
| direct labour total variance = | actual units should have cost | $x |
| actual units did cost | $x | |
| ------- | ||
| direct labour total variance | $x (f/a) | |
| ===== | ||
| direct labour rate variance = | actual hrs should have cost | $x |
| actual hrs did cost | $x | |
| ------- | ||
| direct labour rate variance | $x (f/a) | |
| ===== | ||
| direct labour efficiency variance = | actual units should have taken | x hrs |
| actual units did take | x hrs | |
| --------- | ||
| efficiency variance in hrs | x hrs (f/a) | |
| x standard rate per hr | $x | |
| --------- | ||
| efficiency variance in $ | $x (f/a) | |
| ====== |
Illustration - Labour rate variance
Standard cost/hour $5
Actual hours 45,400
Actual amount paid for actual hours $224,515
What is the labour rate variance?
Solution
45,400 should pay 45,400 x $5= $227,000
Did pay $224,515
Labour rate variance is $2,485 Favourable (Paid less than should have)
Illustration - Labour efficiency variance
Actual production 8,900 units
Standard hours/unit 5 hours at $5/hour
Actual hours worked 44,100
What is the labour efficiency variance?
Solution
Should work 8,900 x 5 hours = 44,500 hours
Did work 44,100
Labour efficiency variance is 400 hours x $5/hour = $2,000 Favourable (We paid less than we should have)
Therefore, we can see that our total labour variance is:
Labour rate variance is $2,485 Favourable +
Labour efficiency variance is 400 hours x $5/hour = $2,000 Favourable
= $4,485 Favourable for the total labour variance.