Labour Piecework Formula

Labour Piecework Formula

Piecework is production based labour payment system. in piecework payment system labour is paid on the bases of unit produced by them. Formula for Piecework payment is

Labour payment = Unit Produced x Rate per Unit

Example

Total units produced by the labour= 6000

Rate of Labour payment per unit is = $ 5

Calculate labour payment?

Solution

 Labour payment = Unit Produced x Rate per Unit

= 6000 x 5

= 30000 $

Labour Rate Variance Formula

Labour Rate Variance Formula

Labour rate variance is difference between the actual rate of actual labour and standard rate of actual labour. Labour rate variance may be favorable or adverse.  Labour rate variance can be calculated following equation or formula

Actual Quantity x (Actual rate- Standard Rate)

Example

Actual Labour on the production of Product X = 5000

Number of Unit produced of Product X = 1500

Standard Labour per unit of product X = 7 hr

Standard Rate = $6

Actual Labour Cost = 50,000

Calculate Labour rate Variance

Solution

Actual Cost per unit = 50,000/5000=10

Actual Quantity x (Standard Rate-Actual Rate)

= 5000 x (6-10)

= 5000 x -4

= -20000 (unfavorable)

Favorable Labour efficiency Variance

Favorable Labour efficiency Variance Example

Favorable Labor efficiency means that actual labor hours are less than expected labour hour and this difference is measured at standard labour hour rate. Mathematically this concept can be expressed as under

Actual Hours < Standard hour = Favorable Labour Variance

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

Example

Number of unit is to be produced of a product = 1000

Labour rate for production (Standard)= $ 9

Standard Labour Hours required for one unit = 5 Hr

Actual hour taken was 4000 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 1000 x 5 = 5000 hours

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

= (5000-4000) x 9

=1000 hr x $ 9

= 9,000 $ (Favorable)

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)

Labour Efficiency Variance Formula

Labour Efficiency Variance Formula

Labour efficiency variance is calculated to show the labour performance. The difference between standard hour & actual hours is measured at standard rate. Labour efficiency ratio may be favorable or unfavorable. Labour efficiency variance can be calculated by the following formula

Actual > Standard hour = unfavorable Labour Variance

Actual Hours < Standard hour = Favorable Labour Variance

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

Example

 Table to be produced = 600

Standard Labour hour rate per table is= $ 6

Standard Labour hour needed per Table = 4 Hr

Actual hour taken was 1800 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 600 x 4 = 2400 hours

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

= (2400-1800) x 6

=(600 x6)

= 3600 (Favorable Variance)

Labour Efficiency Ratio Example

Labour Efficiency Ratio Example

Labour efficiency ratio concept can be explained with following example. It is important to remember that labour efficiency ratio is important tool to monitor the labour performance.

Labour Efficiency Ratio =   Expected Time.   x 100

                                        Actual Time

Example

Standard Hour for producing a chair = 3 Hours

Number of Chairs produced =500 Chairs

Actual labour consumed on production = 1200 Hour

Calculate the labour efficiency ratio

Solution

Standard hours = 500 Chairs x 3 hr= 1500 hrs

Labour Efficiency Ratio =   Expected Time.   x 100

                                        Actual Time

1500/1200 x 100

= 125% (Labour efficiency)

Assuming standard performance is100%, this ratio shows that labour performed 25% well than expectation.

Labour Efficiency Ratio Formula

Labour Efficiency Ratio Formula

Labour efficiency ratio is calculated by dividing the expected or standard labour hours with actual time taken by labour. This ratio explains the performance or efficiency of labour work force.

Labour Efficiency Ratio =   Expected Time.   x 100

                                        Actual Time

Example

Labour hour required for per unit production of equipment A = 8 Hours

Total Number of unit produced =400 units

Actual hour taken in production = 4000 Hour

Solution

Standard hours = 400 unit x 8 hr= 3200 hrs

Labour Efficiency Ratio =   Expected Time.   x 100

                                        Actual Time

=3200/4000 x 100

= 80% (Labour efficiency)

Labour efficiency has been 80%, which is 20% below than expectation

Overtime Premium Rate Formula

Overtime Premium Rate Formula

Overtime premium rate can be calculated following formula. it is important to remember that overtime premium rate is usually expressed as % of basic rate.

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

Example

Basic rate of wages per hour= 6 $

Premium rate is 70% of the basic wage rate

How much overtime shall be paid for 10 hours?

Solution 

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

 6 (1+ 70%)

= 10.2 $ per hour (Premium Rate)

Amount of overtime = Hr x overtime rate

= 10 x 10.2

=102 (Overtime for 10 hours)

Overtime Premium Rate Example

Overtime Premium Rate Example

Overtime premium rate is rate used to calculate the labour overtime. Such rate is usually more than basic rate and expressed as percentage of basic rate. This concept has been explained with an example

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

Example

Labour Basic Rate applicable in the company= 8 $

Premium is to be paid @ 50% of basic pay

What would be the premium rate & overtime, assume overtime hours are 30.

Solution

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

 8 (1+ 50%)

= 12 $ (Rate of overtime Premium)

Amount of overtime = Hr x overtime rate

= 30 Hrs x 12

=360 (Amount of overtime)

Overtime Premium Rate Formula

Overtime Premium Rate Formula

Overtime premium rate can be calculated following formula. it is important to remember that overtime premium rate is usually expressed as % of basic rate.

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

Example

Basic rate of wages per hour= 6 $

Premium rate is 70% of the basic wage rate

How much overtime shall be paid for 10 hours?

Solution

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

 6 (1+ 70%)

= 10.2 $ per hour (Premium Rate)

Amount of overtime = Hr x overtime rate

= 10 x 10.2

=102 (Overtime for 10 hours)

Labour Hours Saved Example

Labour Hours Saved Example

Labour Hours saved concept can be explained with following simple example. Labour hour saved is situation, where standard hour more than actual hours.

Hour Saved= Expected Hour > Actual Hour

Hour Saved = Expected Hour – Actual Hours

Example

Labour Requirement per unit= 4 Hour

Unit to be produced=500

Actual Labour Hours = 1800

Calculate hour saved

Solution

Expected Hours = units x hour required per unit

=500 x4

= 2000

Actual hours Spent or taken= 1800

Hour saved= Standard hours – actual hours

= 2000-1800

=200 Hours Saved