In a factory section there are 80 workers and the average rate of wages per worker is Re. 0.50 per hour. Standarworking hours per week are 45 and the standard performance is 6 units per hour.During the four weeks in February, wages paid for 40 workers was Re. 0.50 per hour; for 15 workers Re. 0.60 pchour, and 25 workers Re. 0.40 per hour. The Section did not work for 4 hours due to break-down of machinery.Work out the labour rate variance for the section for the 4 weeks.
Question
In a factory section there are 80 workers and the average rate of wages per worker is Re. 0.50 per hour. Standarworking hours per week are 45 and the standard performance is 6 units per hour.During the four weeks in February, wages paid for 40 workers was Re. 0.50 per hour; for 15 workers Re. 0.60 pchour, and 25 workers Re. 0.40 per hour. The Section did not work for 4 hours due to break-down of machinery.Work out the labour rate variance for the section for the 4 weeks.
Solution
To calculate the labour rate variance, we first need to determine the standard cost and the actual cost.
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Standard Cost: The standard cost is the cost that should have been incurred for the actual output at the standard rate. The standard rate is Re. 0.50 per hour. The standard working hours per week are 45, and there are 4 weeks in February. So, the total standard hours are 80 workers * 45 hours/week * 4 weeks = 14400 hours. The standard cost is therefore 14400 hours * Re. 0.50/hour = Re. 7200.
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Actual Cost: The actual cost is the cost that was actually incurred. For 40 workers, the rate is Re. 0.50 per hour; for 15 workers, the rate is Re. 0.60 per hour; and for 25 workers, the rate is Re. 0.40 per hour. The total actual hours worked is 14400 hours - 4 hours (due to machinery breakdown) = 14396 hours. The actual cost is therefore (40 workers * Re. 0.50/hour * 14396 hours/80 workers) + (15 workers * Re. 0.60/hour * 14396 hours/80 workers) + (25 workers * Re. 0.40/hour * 14396 hours/80 workers) = Re. 7199.80.
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Labour Rate Variance
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