Favorable Labour Rate Variance Example

Favorable Labour Rate Variance Formula

Favorable Labor rate variance would result, when actual rate is lower than standard rate of labour. This concept can be expressed mathematically as under

Actual Cost < Standard Cost = Favorable Labour rate Variance

Actual Quantity x (Standard Rate-Actual Rate)

Example

Labour Spent on a project of production = 2000

Number of Units produced for project = 600 units

Standard Labour hour expected is = 8 hr

Standard Rate of labour for project = $35

Labour Cost of project = 60,000

Calculate Labour rate Variance

Solution

Actual Cost = 60,000/2000=30

Actual Quantity x (Standard Rate-Actual Rate)

= 2000 x (35-30)

= 2000 x 5

= 10000 (favorable)

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 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.

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)

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

Labour Capacity utilization Example

Labour Capacity utilization Example

Labour Capacity Utilization is calculated by the following formula. The concept of labour utilization has been explained with an example

Labour Capacity utilization Ratio =   Hour Spent by Labour   x 100

                                                  Total Available hour

Example

Hours available for a project were = 1400

Actual Hour Spent = 1000

What has been Labour Capacity utilization?

Solution

Labour Capacity utilization Ratio =   Hour Spent by Labour   x 100

                                                      Total Available hour

=(1000/1400) x 100

=71.42%

This example shows that only 71.42% of total resources available were utilized.