Direct Labour Variances (Cambridge (CIE) A Level Accounting): Revision Note

For the total direct labour variance and direct labour efficiency variance, make sure you flex the budgeted data so that it reflects the actual number of units produced.

Also, another name for standard cost is budgeted cost!

Brakes Ltd make brake pads. Here is the annual budgeted and actual information:

Calculate:

(i) direct labour rate variance

(ii) direct labour efficiency variance

(iii) total direct labour variance

Answer:

(i) Direct Labour Rate Variance

Find the actual hours used

12 000 × 4.5 hours = 54 000 hours

Use the formula

• actual hours used × (standard rate – actual rate)

• It is adverse because the actual rate per hour is more than budgeted

54 000 × ($12.00 - $14.00)

$108 000 Adverse

(ii) Direct Labour Efficiency Variance

Find the budgeted hours of labour for the actual amount of units produced

• Ignore the budgeted units

• Multiply the actual number of units by the budgeted labour hours per unit

12 000 × 5 hours = 60 000 hours

Use the formula

• standard rate × (standard hours for actual production – actual hours used)

• It is favourable because the actual hours of labour used are less than the standard hours

$12.00 × (60 000 - 54 000)

$72 000 Favourable

(iii) Total Direct Labour Variance

Combine the variances

Alternatively, you can use the formula

• (standard hours for actual production × standard rate) - (actual hours used × actual rate)

(60 000 × $12.00) - (54 000 × $14.00)

$36 000 Adverse