It is also known as Gang composition Variance. It is similar to Material Mix variance and is a part of labour efficiency variance. Labour mix variance arises only when two or more different types of workers employed and the composition of actual grade of workers differ from the standard composition of workers. The change in the labour composition may be due to shortage of one grade of labour. This variance indicate how much labour cost variance is there due to the change in labour composition. It is calculated with the help of the following formula:

Labour Mix Variance = Standard Cost of Standard Mix – Standard Cost of Actual Mix

LMV = SCSM – SCAM,

or

Labour Mix Variance = (Revised Standard – Actual Hours Worked) X Standard Rate

Symbolically,

LMV = (RSH – AHW) X SR

Where,

RSH = Actual Total Hours Worked X Standard Ratio of Workers

Or

Standard Hours of the grade

------ X Total Actual Hours Worked

Total Standard Hours

Where,

Actual Hours Worked = Actual hours – Idle Time

If the actual hours taken are less than the revised standard hours, the variance is favourable, and vice versa.

**Labour Revised Efficiency Variance (LREV)**

This variance arises due to the difference between the total actual hours taken and the total standard hours specified for the actual output. This variance is a sub-variance of labour efficiency variance. It arises when there is difference between actual hours paid and actual hours worked, there will be revised efficiency variance and idle time variance. The formula for Labour Revised Efficiency Variance is:

LREV = (Standard Hours for Actual output – Revised Standard Hours ) X Standard Rate

Where,

Standard Hours of the grade

RSH =------ X Total Actual Hours Paid

Total Standard Hours

Or

= Total Actual Hours Paid X Standard Ratio

**Labour Yield Variance (LYV)**

It is similar to Material Yield Variance. It studies the impact of actual yield on labour cost where output varies from the standard. The formula for LYV is:

Labour Yield Variance

= (Actual yield – Standard yield) X Standard labour cost per unit of output

Where,

Std. output

Std. Yield = ------ X AHW;

Total AH

Std. cost

Std. labour cost per unit = ------

Std. Output (units)

If the standard yield is more than the actual yield the variance will be adverse and vice versa.

Example

The following information is available from the records of a Company:

Standard wages Actual wages

Skilled : 90 workers @ $2 per hour 80 workers @ $2.50 per hour

Unskilled : 60 workers @ $3 per hour 70 workers @ $2 per hour

Budgeted hours : 1000 Actual hours : 900

You are required to calculate the following:

i)Labour Cost Variance

ii)Labour Rate Variance

iii)Labour Efficiency Variance

iv)Revised Labour Efficiency Variance

v)Labour Mix Variance

Solution

Type of workers | Standard | Actual | ||||

*Hours | Rate | Amount | **Hours | Rate | Amount | |

Skilled | 90,000 | $2 | 1,80,000 | 72000 | $2.50 | 1,80,000 |

Unskilled | 60,000 | $3 | 1,80,000 | 63000 | $2.00 | 1,26,000 |

1,50,000 | 3,60,000 | 1,35,000 | 3,06,000 |

* Hours = No. of Workers X Budgeting Hours

**Hours = No. of Workers X Actual Hours

i) Labour Cost Variance

= (Std. Hours of actual output X Std. Rate) – (Actual Hours X Actual Rate)

Skilled = (90,000 X $12) – (72,000 X $2.50) = NIL

Unskilled = (60,000 X $3) – (63,000 X $2.50) = $54,000 (F)

-----

LCV = $ 54,000(F)

-----

ii) Labour Rate Variance = (Std. Rate – Actual Rate) X Actual Hours

Skilled = ($2 – $2.50) X 72000 = $36000(A)

Unskilled = ($3 – $2) X 63000 = $63000(F)

------

LRV = $27000(F)

------

iii) Labour Efficiency Variance = (Std. Hours – Actual Hours) X Standard Rate

Skilled = (90,000 – 72,000) X $2 = $36,000 (F)

Unskilled = (60,000 – 63,000) X $3 = $ 9,000 (A)

------

LEV = $27,000(F)

------

iv) Labour Mix Variance = (Revised Std. hours – Actual Hours) X Standard Rate

where,Standard Hours of the grade

Revised Standard Hour = ------ X Total Actual Hours Worked

Total Standard Hours

Or

= Actual Hours X Std. Ratio

90,000 3

Skilled = ------ X 13500 = 81000 hours or 135000 hrs X ---- = 81000 hrs

1,50,000 5

60000 2

Unskilled = ---- X 135000 = 54000 hours or 13500 hrs X ----- = 54000 hrs

150000 5

Labour Mix Variance = (Revised Std. Hours – Actual Hours) X Standard Rate

Skilled : (RSH – AH) X SR

= (81000 – 72000) X $2 = $18000 (F)

Unskilled (54000 – 63000) X $3 = $27000 (A)

-----

LMV = $9000 (A)

------

iv) Labour Revised Efficiency Variance = (Std. Hrs – Revised Std. H$) X Std. Rate

Skilled = (90000 – 81000) X $2 = $18000 (F)

Unskilled = (60000 – 54000) X $3 = $18000 (F)

------$36000 (F)

-------

Verification

LCV = LRV + LEV

$54000 = $27000 (F) + 27000 (F)

$54000(F) = $54000(F)

LEV = LMV + LREV

$27000(F) = $9000(A) + $36000(F)

$27000(F) =$27000(F)

**To Schedule a Accounting Labour Mix Variance tutoring session **

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