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Chapter 15

Example 3

The standard hours per unit of production for a product is 5 hours. Actual
production for the period was 250 units and actual hours worked were
1,450 hours. The standard rate per hour $10. Because of a shortage of skilled
labour it has been necessary to use unskilled labour and it is estimated that
this will increase the time taken by 20%.

Calculate the planning and operational efficiency variances.

AH × SR = 1,450 × $10 = $14,500
Operational variance $500 F

RSH × SR = 1,500 × $10 = $15,000
Planning variance $2,500 A

SH × SR = 1,250 × $10 = $12,500

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