ACCA Examples: December 2015

Tuesday 15 December 2015

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

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 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 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 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 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)

Normal Output Formula

Normal output can be calculated by deducting normal loss from the input. Normal output takes into account the normal loss. Normal output is calculated by deducting normal loss from the input this concept is widely used in process accounting.

Normal output = input –Normal Loss

Example

Input material = 200 kg

Normal loss is 10%

Calculate normal output

Solution

Normal output = input –Normal Loss

= 200 – 10 %(200)

=200 – 20

=180

Labour Efficiency Ratio Formula

Labour efficiency ratio explain, how efficiently labour worked on a project. It is important to remember that efficiency ratio effective was to assess the performance of the labour. High efficiency ratio reflects good performance, while low efficiency ratio show poor performance.

Labour Efficiency Ratio = Expected Time. x 100

Actual Time

Example

Labour required per Unit = 5 Hours

20 units produced

Actual hour taken = 80 Hour

Solution

Standard hours = 20 unit x 5 hr= 100 hrs

Labour Efficiency Ratio = Expected Time. x 100

Actual Time

100/80 x 100

= 125%

It means that 25% more efficiently than expectation.

Labour Capacity utilization Formula

Labour capacity utilization formula may be calculated by dividing labour hours spend on job with total labour hours available. It is important to mention that capacity utilization has no relationship or linkage with efficiency. This formula can be expressed mathematically as follow;

Labour Capacity utilization Ratio = Hour Spent by Labour x 100

Total Available hour

Example

Total hour available = 1200

Hour worked = 950

Calculate Labour Capacity utilization?

Solution

Labour Capacity utilization Ratio = Hour Spent by Labour x 100

Total Available hour

=(950/1200) x 100

=79.16%

Labour Hours Saved Formula

Labour Hour Saved Formula

Labour Hour saved is a situation, where expected hour are greater than actual hour taken by the labour to perform a work. It means labour worked more efficiently

Hour Saved= Expected Hour > Actual Hour

Hour Saved = Expected Hour – Actual Hours

Example

1 unit requires 5 labour hour

500 units produced in 2000 hours

Calculate hour saved

Solution

Expected Hours =500 units x hour required per unit

=500 x5

= 2500

Actual hours = 2000

Hour saved= Standard hours – actual hours

= 2500-2000

=500 Hours

Tuesday 8 December 2015

Tax Credit Formula

Tax credit is available if two countries have agreement to avoid double taxation. it means amount taxed in one country will not be taxed again.

Tax Credit = Tax paid in foreign country

Tax Credit Formula Example

Income received from USA= 40,000

Tax rate 40%

Tax paid in USA was $ = 10,000

Calculate tax Credit

Solution

Tax amount = 40,000 x40% = 16,000

Tax credit = 10,000

Tax payable = 16,000-10,000

= 6,000

Tax Saving Formula

Tax saving may be calculated by multiplying the expense with tax rate applicable in the country. Tax saving concept is widely used in discounted cash flows. Tax saving is treated as reduction in cash outflows.

Tax Saving = Expense x Corporate Tax Rate

Tax Saving Example

Expense = 40,000

Corporate Tax = 30%

Calculate Tax Saving?

Solution

Tax Saving = Expense x Corporate Tax Rate

= 40,000x30%

= 12,000 (Tax Savings)