Question
Standard labour hours for producing 1,000 units = 2,000
hours at ₹60/hour. Actual output = 900 units, actual hours worked = 1,950 hours, and actual wage rate = ₹65/hour. Calculate Labour Cost Variance (LCV), Rate Variance, and Efficiency Variance.Solution
• Standard hours for actual output (SH) = 900 × 2 = 1,800 hrs • Standard cost (SH×SR) = 1,800 × ₹60 = ₹1,08,000 • Actual cost (AH×AR) = 1,950 × ₹65 = ₹1,26,750 Labour Cost Variance (LCV) = SH×SR − AH×AR = 1,08,000 − 1,26,750 = ₹18,750 (Adverse) Labour Rate Variance (LRV) = (SR − AR) × AH = (60 − 65) × 1,950 = ₹9,750 (Adverse) Labour Efficiency Variance (LEV) = (SH − AH) × SR = (1,800 − 1,950) × 60 = ₹9,000 (Adverse) Check: LRV + LEV = −₹9,750 − ₹9,000 = −₹18,750 = LCV, so everything reconciles.
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