PEV help!!!

GemmaLouise

Hi - abit confused!
I am looking at subdivision of variances!
I know how to work these out - its explaining them thats a bit tricky!

For example:

There is a labour efficiency variance of 890 Favourable so obviously employees have worked faster than anticipated.

The revisied standard is 6.8 hours (reduced 2% from 6.9 hours)

So i did

Standard hours - Revised) x std rate = 1780 F
(13800 - 13600) x 8.90
So the revised is less than the standard

Actual - Revised x std rate = 890 A
(13700 - 13600) x 8.90 = 890 A

Which comes back to the 890 F


I know the actual is more than revised so this is adverse and is due to some other factors but what does the standard v revised show - that there were even more efficient than first thought????!!!

Thankyou!!!!

SandyHood

I'll make up a story along the lines that the standard was set, then the staff received training then the production took place.

So the initial labour efficiency variance was based on the difference between the original standard time x the units produced and the actual time taken

Then the effect of training was taken as one sub-variance (as you identified)

Then the difference between the revised standard time for actual production and the actual hours shows the efficiency compared withn the standard based on the new faster time. If this is also favourable that shows either that the training had an even better effect than expected, or that jobs were rushed with a worry about the quality of outout.

GemmaLouise

thanks sandy!