Wednesday, 16 December 2015

Unfavorable Labour Efficiency Variance

Unfavorable Labour Efficiency Variance Example

Unfavorable labour efficiency variance means that actual labour hours are more than standard hour and this difference is measured at standard rate.

Actual Hours > Standard hour = Favorable Labour Variance

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

Example
Product A Production Demand= 1200 units
Standard labour hour per unit of A= $ 12
Labour requirement per unit = 6 Hours
Actual Labour hour on production = 8000 Hours
Calculate Labour Efficiency Variance

Solution
Standard Hours = 1200 x 6 = 7200 hours
Labour Efficiency Variance = (Standard hours –Actual Hours) x (Standard Rate)
= (7200-8000) x 12
=-800 x 8

= -6,400 $ (unfavorable)

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