Favorable Labour Rate Variance Formula

Favorable Labour Rate Variance Formula

In labour rate variance would be favorable, if actual cost is lower than standard cost. in other word favorable variance would result in , when actual labour rate is lower than standard labour rate.

Actual Cost < Standard Cost = Favorable Labour rate Variance

Actual Quantity x (Standard Rate-Actual Rate)

Example

Actual Labour Hr Spent = 2000

Unit produced during period = 600 units

Standard Labour per unit = 7 hr

Standard Rate = $22

Labour Cost = 40,000

Calculate Labour rate Variance

Solution

Actual Cost = 40,000/2000=20

Actual Quantity x (Standard Rate-Actual Rate)

= 2000 x (22-20)

= 2000 x 2

= 4000 (favorable)

Labour Rate Variance Formula

Labour Rate Variance Formula

In labour rate variance actual cost and standard cost of actual labour spent is compared. Labour rate variance is favorable, when actual cost is lower than standard cost of labour worked; otherwise labour rate variance is unfavorable. Labour rate variance can be calculated following equation or formula

Actual Quantity x (Actual rate- Standard Rate)

Example

Actual Labour Hr Spent = 3000

Unit produced during period = 500

Standard Labour per unit = 5 hr

Standard Rate = $6

Labour Cost = 20,000

Calculate Labour rate Variance

Solution

Actual Cost = 20,000/3000=6.667

Actual Quantity x (Standard Rate-Actual Rate)

= 3000 x (5-1.667)

= 3000 x -1.667

= -5001 (unfavorable)

Unfavorable Labour Efficiency Variance Formula

Unfavorable Labour Efficiency Variance Formula

Unfavorable Labour efficiency variance would result, where actual are more than standard hour. This is not a favorable situation, because labour is taking more hours on work than expected.

Actual Hours > Standard hour = Favorable Labour Variance

Labour Efficiency Variance = (Standard Hours- Actual Hours) x (Standard Rate)

Example

Project was awarded to produce= 800 units

Labour Standard hour payment rate= $ 8

Labour requirement per unit = 5 Hours

Actual Labour hour spent = 4200 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 800 x 5 = 40000 hours

Labour Efficiency Variance = (Standard hours –Actual Hours) x (Standard Rate)

= (4000-200) x 8

=-200 x 8

= -1,600 $ (unfavorable)

Favorable Labour efficiency Variance Formula

Favorable Labour efficiency Variance Formula

Favorable Labour efficiency variance would result in, when actual hours taken by labour are less than standard hour. This efficiency is measured in standard rate of labour.

Actual Hours < Standard hour = Favorable Labour Variance

Labour Efficiency Variance = (Standard Hours- Actual Hours) x (Standard Rate)

Example

Unit to be produced = 700

Standard Rate of Labour per hour= $ 7

Labour required for one unit = 4

Actual hour taken was 2500 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 700 x 4 = 2800 hours

Labour Efficiency Variance = (Standard hours –Actual Hours) x (Standard Rate)

= (2800-2500) x 7

=300 x 7

= 2,100 $ (Favorable)

Labour Efficiency Variance Formula

Labour Efficiency Variance formula

Labour efficiency variance shows the efficiency of the labour i.e. how efficiently labour has worked on a product. Labour efficiency measure in term of standard rate. If actual Hours are more than expected hours than, it would result in unfavorable variance, otherwise it would be favorable variance.

Actual > Standard hour = unfavorable Labour Variance

Actual Hours < Standard hour = Favorable Labour Variance

Labour Efficiency Variance = (Standard Hours- Actual Hours) x (Standard Rate)

Example

Unit produced = 500

Standard Labour hour rate is= $ 5

Labour hour needed per unit = 3

Actual hour taken was 1600 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 500 x 3 = 1500 hours

Labour Efficiency Variance = (Standard hours –Actual Hours) x (Standard Rate)

= (1500-1600) x 5

=(500) unfavorable

Piecework Formula

Piecework Formula

Piecework is a Labour payment method or system used to calculate payment of labour based on output.  The labour payment can be simply calculated by multiplying the rate per unit with unit produced.

Labour payment = Unit Produced x Rate per Unit

Example

100 units produced

Rate per unit produced = $ 3

Calculate labour payment?

Solution

 Labour payment = Unit Produced x Rate per Unit

= 100 x 3

= 300 $

Overtime Premium Rate Formula

Overtime Premium Rate Formula

Overtime premium rate usually is paid as percentage of basic rate. Premium rate is used to pay the bonus or overtime to the labour. This relationship can be mathematically expressed by following formula

Overtime Premium Rate=Basic Rate (1+ % of basic Rate)

Example

Basic rate= 5

Premium is 60% of basic Rate

Calculate amount of overtime for 20 Hours

Solution

Overtime Premium Rate=Basic Rate (1+ % of basic Rate)

 5 (1+ 60%)

= 8 $ per hour (Premium Rate)

Amount of overtime = Hr x overtime rate

= 20 x 8

=160 (Overtime)