{"id":1108,"date":"2021-02-17T10:27:14","date_gmt":"2021-02-17T04:57:14","guid":{"rendered":"https:\/\/scholarsclasses.com\/blog\/?p=1108"},"modified":"2025-10-05T11:06:30","modified_gmt":"2025-10-05T05:36:30","slug":"variance-analysis-labour-variances","status":"publish","type":"post","link":"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/","title":{"rendered":"Variance Analysis &#8211; Labour Variances | Standard Costing"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d93a66e2942\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d93a66e2942\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Variance_Analysis_%E2%80%93_Labour_Variances\" >Variance Analysis &#8211; Labour Variances<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Standard_Costing\" >Standard Costing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Definition_of_Standard_Costing\" >Definition of Standard Costing :<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Advantages_of_Standard_Costing\" >Advantages of Standard Costing:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Limitations_of_Standard_Costing\" >Limitations of Standard Costing:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Objectives_of_Standard_Costing\" >Objectives of Standard Costing:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Importance_of_Variance\" >Importance of Variance:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Meaning_of_Variances\" >Meaning of Variances:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#Labour_Variances\" >Labour Variances :<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#1_Labour_Cost_Variances_LCV\" >(1) Labour Cost Variances (LCV)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#2_Labour_Rate_Variances_LRV\" >(2) Labour Rate Variances (LRV)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#3_Labour_Efficiency_Variances_LEV\" >(3) Labour Efficiency Variances (LEV)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#4_Labour_Mix_Variances_LMV\" >(4) Labour Mix Variances (LMV)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/#5_Labour_Yield_Variances_LYV\" >(5) Labour Yield Variances (LYV)<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading has-text-align-center\"><span class=\"ez-toc-section\" id=\"Variance_Analysis_%E2%80%93_Labour_Variances\"><\/span>Variance Analysis &#8211; Labour Variances<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Standard_Costing\"><\/span>Standard Costing<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Standard costing is a perfect system for controlling costs and measuring efficiency and development. It is a technique of cost reduction and cost control. It helps to provide valuable guidance in several management functions, such as formulating policies, determining price levels, etc. The essence of standard costing is to set objectives and targets to achieve them, to compare the actual costs with these targets. Standard Costing is used to ascertain the standard cost under each element of cost, i.e., materials, labour, and overhead. It can eliminate all kinds of waste. Through the application of this costing, it can be ascertained whether or not the activities of production are going on according as the pre-determined plan.<\/p>\n\n\n\n<p><strong>You learn many topics of accounting from our YouTube channel <a href=\"http:\/\/www.youtube.com\/tybcomscholarszilla\" target=\"_blank\" rel=\"noopener\">TYBCOMSCHOLARSZILLA <\/a>              <\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Definition_of_Standard_Costing\"><\/span>Definition of Standard Costing :<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>\u2022 A standard costing system is a method of cost accounting in which standard costs are used in recording a certain transaction, and the actual costs are compared with the standard cost to learn the amount and reason for variations from the standard.<br>\u2010 W.B. Lawrence<\/p>\n\n\n\n<p>Standard costing involves preparing costs based on pre\u2010determined standards and continuously comparing actual costs with them for guidance and control.<br>\u2010 D. Joseph<\/p>\n\n\n\n<p>Learn the chapter on Variance <a href=\"https:\/\/youtu.be\/S_erJ3-NYQ0\" data-type=\"link\" data-id=\"https:\/\/youtu.be\/S_erJ3-NYQ0\" target=\"_blank\" rel=\"noopener\">Analysis<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_Standard_Costing\"><\/span>Advantages of Standard Costing:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Proper Planning<\/li>\n\n\n\n<li>Efficient Cost Control<\/li>\n\n\n\n<li>Motivational Factor<\/li>\n\n\n\n<li>Comparison of standard and actual <\/li>\n\n\n\n<li>Inventory Control<\/li>\n\n\n\n<li>Helpful in Budgeting<\/li>\n\n\n\n<li>Helps Formulate Policies<\/li>\n\n\n\n<li>Eliminates Wastage<\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Limitations_of_Standard_Costing\"><\/span>Limitations of Standard Costing:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Costly System<\/li>\n\n\n\n<li>Difficulties in Fixation of Standard<\/li>\n\n\n\n<li>Not useful for Service Industry<\/li>\n\n\n\n<li>Consistency of Standard<\/li>\n\n\n\n<li>Unsuitable for Non\u2010standardised Products<\/li>\n\n\n\n<li>Difficulties for Small Industries<\/li>\n\n\n\n<li>Discouragement for Workers<\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Objectives_of_Standard_Costing\"><\/span>Objectives of Standard Costing:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol class=\"wp-block-list\">\n<li>To institute a control mechanism on all the elements of costs that affect production and sales<\/li>\n\n\n\n<li>To measure different operational efficiencies and check the wastages<\/li>\n\n\n\n<li>To improve the delegation of authority and generate a sense of responsibility among the employees<\/li>\n\n\n\n<li>To develop a cost-consciousness in the employees<\/li>\n\n\n\n<li>To presume the production costs, sales and profit<\/li>\n\n\n\n<li>To avail the benefits of &#8216;Management by exception.&#8217;<\/li>\n\n\n\n<li>To bring about a vivid progressive vision and sagacious decision-making at each managerial level.<\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance_of_Variance\"><\/span>Importance of Variance:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>There is a lot of importance in the analysis of variance. There are many objects fulfilled with their analysis. Without analysis of variance, there is no use of standard costing. The important points of variances are as follows:<br>1) Check and control of wastage is possible.<br>2) It improves the efficiency of the organization by the use of standard costing.<br>3) It exercises control over all cost centers, including departments, individuals, and so on.<br>4) Responsibility of a particular person or department can be fixed.<br>5) In the prediction of production cost, sales and profit, variance analysis is very useful.<br>6) On the basis of variance analysis, a delegation of authority could be made effective.<br>7) Variance analysis is easy to introduce, apply, and orient the result.<br>8) Various operational efficiencies can be measured.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Meaning_of_Variances\"><\/span>Meaning of <a href=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/\" data-type=\"link\" data-id=\"https:\/\/scholarsclasses.com\/blog\/variance-analysis-labour-variances\/\">Variances<\/a>:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Initially, standards for all elements of costs should be set, and then the actual cost should be compared with the standard costs to obtain the variances. Some deviations are found when actual performances are recorded and compared with the standard set. These deviations are known as variances. <\/p>\n\n\n\n<p>&#8220;A variance is the difference between a standard cost and the comparable actual cost incurred during a period&#8221;<br>\u2010 C.I.M.A. London<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Labour_Variances\"><\/span><strong>Labour Variances <\/strong>:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>These variances include Labour Cost Variances, Labour Rate Variances, Labour Efficiency Variances, Labour Mix Variances, and Labour Yield Variances.<br><\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1_Labour_Cost_Variances_LCV\"><\/span><strong>(1) Labour Cost Variances (LCV)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>\u2022 It is the difference between the Standard labour costs and the actual labour costs for the production<br>achieved.<br>\u2022 As the cost of labour is determined by labour time and wages, the labour cost variance is composed of either or both of variances relating to labour time and labour rate<br>\u2022 If the Standard Cost is higher, the variation is favourable and vice versa<br><strong>=Standard labour cost for actual output- Actual labour output<br>= (Standard hours for actual output * Standard rate per hour) &#8211; (Actual hours * Actual rate per hour)<br>= (SH X SR) &#8211; (AH X AR)<\/strong><\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2_Labour_Rate_Variances_LRV\"><\/span><strong>(2) Labour Rate Variances (LRV)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>\u2022 It is the difference between the standard and the actual direct Labour Rate per hour for the total hours worked.<br>\u2022 The reasons for labour rate variance can be more efficient and skilled workers might have been employed and higher wages may have been paid to them, new workers not being allowed full normal wage rates, use of a different method of payment, or higher wages paid on account of overtime for urgent work.<br>\u2022 LRV will be an uncontrollable variance as labour rates are usually determined by demand and supply conditions in the labour market, backed by the negotiation skills of the trade union.<br>\u2022 If the standard rate is higher, the variance is Favourable and vice versa.<br><strong>=(Standard rate- Actual rate) X Actual Hours<br>= (SR-AR) X AH<\/strong><\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3_Labour_Efficiency_Variances_LEV\"><\/span><strong>(3) Labour Efficiency Variances (LEV)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>\u2022 It is the difference between the standard hours for the actual production achieved and the hours actually worked, valued at the standard labour rate.<br>\u2022 The reasons for labour efficiency variance can be defective and bad material, lack of proper supervision or stricter supervision than specified, poor working conditions, breakdown of plant &amp; machinery, failure of power, etc.<br>\u2022 When the workers finish the specific job in less than the standard time, the variance is favourable. If the workers take more time than the allotted time, the variance is adverse.<br><strong>=(Standard hours for actual output- Actual hours) X Standard rate<br>= (SH-AH) X SR<\/strong><\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4_Labour_Mix_Variances_LMV\"><\/span>(4) <strong>Labour Mix Variances (LMV)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>This variance arises if during a particular period the grades of labour used in production are different from those budgeted.<br>\u2022 It is the difference between the standard composition of workers and the actual gang of workers.<br>\u2022 It enables the management to study how much of the labour variance occurred due to the changes in the composition of labour force<br><strong>=(Revised Standard hours- Actual Hours) X Standard Rate<br>= (RSH- AH) X SR<br>RSH = Total time of actual workers<br>               &#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;-                  X  Standard Time<br>            Total time of standard workers<\/strong><\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5_Labour_Yield_Variances_LYV\"><\/span><strong>(5) <strong>Labour Yield Variances<\/strong> (LYV)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>\u2022 It is the variation in labour cost on account of an increase or decrease in yield or output as compared to the relative standard.<br><strong>= (Actual Yield- standard yield from actual output) X  Standard labour cost per unit of output<\/strong><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":1126,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2,7],"tags":[582],"class_list":["post-1108","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bcom","category-degree-college","tag-labour-variances"],"_links":{"self":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/1108","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/comments?post=1108"}],"version-history":[{"count":20,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/1108\/revisions"}],"predecessor-version":[{"id":38360,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/1108\/revisions\/38360"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media\/1126"}],"wp:attachment":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media?parent=1108"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/categories?post=1108"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/tags?post=1108"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}