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00:10hi friends welcome to amazon world so in this video i will be explaining how to do case let
00:16number eight let's go through the question mr lexman rava the owner of guider ring provides
00:20the following information regarding the production process of a particular fountain pen called the
00:24zimbo after careful consideration he has noted that a group of workers usually consist of 10
00:29skilled five semi-skilled and five unskilled workers paid at standard hourly rates of rupees 5
00:34rupees 3.20 and rupees 2.80 respectively in a normally working week of 40 hours the group is
00:43expected to produce thousand units of zimbo during march 2022 adjustments were to be made to the
00:49actual conversation of the group due to known availability of labor and actual actually
00:54consisted of 30 skilled four semi-skilled and three unskilled employees actual wages paid were
01:00rupees 4.80 rupees 3.40 and rupees 2.60 respectively two hours were lost due to abnormal idle time
01:08and
01:08960 units of zimbo were produced mr lexman rava is worried about the variances in labor coast and asks
01:14his friend mr shiva who is a coast accountant to submit to him a report a report regarding the labor
01:19cost variances so they have given us some budgeted data as well as standard rates as well and the
01:28working week the working week contained 40 hours so it is actually a fixed hour so that means for
01:34actual data calculation and as for a standard as well and in case of standard as well we'll be
01:41considering this 40 hours okay and the actual production was 960 units and they're saying that
01:48there was an idle time two hours is idle time so for each uh employees there will be an idle
01:54time
01:54of two and we have to calculate according to it so we have to calculate the hours according to it
02:00that's it so now let's see how this question have to be solved i have already wrote down the
02:07data which was available to us from the question so this is a stand two we have we know that
02:1340 hours
02:13is the entire week and there was two hours idle time for each of the employees and this is the
02:18actual number of employees for skilled semi-skilled and unskilled and they expected that means the
02:24budgeted units was thousand units okay the budgeted units the units which they expected to make was
02:29thousand units but they ended up producing only 960 units now let's just go straight to the calculations
02:36first thing as i told you we have to first calculate the standard hours so how we are going to
02:42calculate standard hours that's what i'm going to show you here see skilled hours semi-skilled
02:49hours unskilled hours we have to find all three of them we know that standard or you can say the
02:54employees that standard data which was given us in the question there were 10 skilled uh employees
03:00five semi-skilled employees and five unskilled employees so we have to calculate that since we have
03:05told us that the entire week had 40 hours we have to multiply it with this 40 since we have
03:10to get to know
03:11for each person 40 hours will be there so 10 person are there in skilled 10 employees are there in
03:18skilled workers included 10 workers are included in skilled employees so we have to multiply 10 into
03:2440 in order to get the total hours of this entire 10 people which is included in the skilled
03:30labor okay so we got them as 400 hours and for semi-skilled we'll be having 200 hours and for
03:37unskilled
03:37we'll be having 200 hours but there is a problem because in this question the standard data is given
03:44to us actually the basis of this budgeted unit we want to find that is this data will be on
03:50the basis
03:51of thousand units but in actual how much units were produced 960 units were produced right so we have to
03:57convert them to 960 so you'll be asking me why so i would suggest you to go see my basic
04:02videos first
04:03um especially for the labor variances it i have applauded the video in english i know my english
04:09is a bit low um uh my first language is not english so you might have a bit of confusions
04:16here and there
04:17but if you're having confusions you can just comment below and i will be uh replying you back sure okay
04:22so
04:23we have to convert them to 960 units let me explain why we have to convert it in 960 it
04:28is because
04:30standard budget we might use these two words uh for the same purpose at times but when we are going
04:38too deep into the topic we will get to understand that this budgeted had its own meaning and this
04:44standard have its own meaning so uh the meanings and all have explained in the basics video the very
04:49first video which i have applauded in english regarding the topic labor variances or this variance uh analysis
04:55chapter okay so that very first we have to go through in order to get why what is the difference
05:00between standard and budgeted and all so let me get into it so for both standard and actual we'll be
05:07taking the actual output for the calculations and all since standard is for actual production standard data
05:13is actually the um data for actual production or you can say actual output on the basis of budgeted
05:22what we are going to do is that we are going to convert these hours into since this is based
05:26on the thousand units we have to convert them into actual output since standard is for actual output we
05:32can say actual production so this is how we are going to calculate skilled hours that means there was
05:37400 hours and this 400 was skilled labor was for thousand units was to make thousand units but we we
05:44actually
05:44are making 960 units so we are going to convert them and we got 384 hours when it gets to
05:49semi-skilled
05:49hours the same thing the same calculation that means 200 hours was there but this 200 house of semi-skilled
05:55labor was to make thousand units okay but we have only made 960 units we are going to can convert
06:02this
06:02as well so same answer will be getting for unskilled as well so 384 hours for skilled now 92 hours
06:08for
06:08semi-skilled and 192 hours for unskilled will be used so this is how we calculated the standard data and
06:16the
06:16standard rate we can take exactly from the question itself okay there is no change in that and and i
06:22have just multiplied it and and i just took a sum of this amount and this as well we'll be
06:27needing it
06:28the further calculations and in case of actual also we have to do so in case of actual what we
06:33have to
06:34multiply 30 into 40 4 into 40 and 3 into 40 you'll get 520 160 and 120 hours so in
06:41sum if you are going to
06:42take the sum we'll get 800 hours here and we are taking that actual rate as it is exactly the
06:48way
06:48it is so and after multiplying it and summing it up we'll get 3352 as in as the amount total
06:54okay so we
06:56will be needing this data to solve the variance analysis so we are going to start calculating first
07:02thing that comes in our way is labor cost variance right so for labor cost variance it is very easy
07:08it's
07:08standard cost and 3352 is the actual cost so once we subtract standard cost minus actual cost we'll
07:15get to 80 adverse so why it is adverse so let me come into it let me say we shouldn't
07:21actually
07:21completely depend upon the negative and the positive signs which we get in the calculator
07:26we have to actually know what's the concept behind it because when we are going to calculate yield
07:31variance and all we might get minus we get we might get minus in the calculator but it
07:36might end up as favorable okay so please don't depend on this minus and positive and negative in
07:43order to classify them as favorable and worse okay so you have to first get to understand what is the
07:48concept behind it okay so let me get into it see standard cost the cost which we have we have
07:57calculated on the basis of budget for the actual was 3072 it was only 3072 but in reality what happened
08:063352 that incurred right so what we have to do we have to subtract it and you will get the
08:10adverse
08:10case because the case in the reality the cost was actually high so it is an adverse case fine so
08:17that
08:17is why labor cost variance is an adverse now let's go through the other variances the first thing we are
08:22going to the other thing the next thing which we are going to calculate is labor efficiency variance
08:26so once we are going to calculate labor efficiency variance there is something more you have to know
08:31about actual hours so when we calculated the actual hours we just what what would you do we multiplied
08:3730 into 40 4 into 40 and 3 into 40 right but that is just the hours which we are
08:44actually paying so we
08:45have to actually differentiate between the actual hours worked and actual hours which is used in order to
08:53calculate the wages okay so there is two points there you have to understand that means in this
09:00question that is idle hours idle hours means the hours which they have which they are not using properly
09:05we can say they are not using that particular hour productively they are not doing anything just
09:10simply sitting simply so it is not uh product so there is no any there is no productivity in that
09:15ask so we have to subtract those hours from the actual hours from the total actual hours and we'll get
09:20the actual hours paid so now in order to calculate labor efficiency variance since in this variance
09:26we are calculating the efficiency of the labor we have to take actual works actual hours work
09:32actual hours worked is what we have to take in order to calculate the labor efficiency variance
09:35so how are we going to do that let's just find out so first thing we are going to do
09:40is actual hours
09:41work how we are going to calculate let me explain since this is in the question you have told us
09:45that
09:45the week had 40 hours right and they have told us that each employees are losing two hours that means
09:52they are they have two hours idle time right so we have to subtract it from this 40 so 40
09:58hours is for
09:59one person that means 40 hours is for one person for one week we have to know and we know
10:05that two hours
10:05is the idle time for one person for one week so how we are going to do that in a
10:11week what is the actual
10:12hours worked 40 minus 38 for one person now we have to know how much is the total that means
10:18there is
10:18lot of employees right in the actual data is 13 4 and 3 we have to calculate what is the
10:24actual hours
10:25worked for the skilled labor as per the actual data okay so 13 is the actual number of employees which
10:33is there in skilled labor and we have to go into we are going to calculate it with 38 we
10:39are going to
10:39multiply it with 38 because we have to know what is the actual hours worked by the skilled labor so
10:46what we did here 40 minus 2 you will get 38 38 into 30 you get to understand the skilled
10:52labor work for
10:53494 hours and the same skill work for 152 hours how 4 into 32 4 into 38 and unskilled work
11:01for 140 hours how
11:023 into 38 you will get 140 hours so i'm just summing it up for the further calculation 760 hours
11:09okay so
11:09this is how we are finding actual hours worked okay so we go to understand what is actual hours work
11:15so
11:15let's calculate labor efficiency now we all know what is the formula for calculating labor efficiency variance
11:26standard hours minus actual hours into standard rate that is how i explained it right standard
11:32hours minus actual hours into standard rate but you have here you have to keep in note that since we
11:37are
11:37going to calculate the labor efficiency variance we have to take actual hours worked okay actual hours
11:42worked not the hours which we have calculated in the beginning of this calculation i have to keep
11:48that in your mind so standard hours we can take as it is as we have calculated in the very
11:52beginning
11:53let me explain how it is to be calculated 384 minus 494 into 5 192 minus 152 into 3.2
12:02likewise 192
12:04minus 140 into 2.8 you have to do this in order to get efficiency variance so for the first
12:12one we'll get
12:13550 adverse next one we'll get 128 favorable next one will get 280.4 favorable so once we are taking
12:19the next effect we'll get 203.6 a adverse okay so we now understood how to calculate labor efficiency
12:25variance now let's go with the labor ideal variance so let me explain how to calculate labor ideal
12:32variance before this this i have already explained in the basics video just i'm just showing this to
12:37refresh your mind so actual hours minus actual hours work you have to do first and then we have to
12:41multiplied with standard rate it is very easy since we know what is actual hour in the very beginning
12:46we have already calculated it and we have just now we have calculated actual hours worked as well
12:52so after doing this multiplied with standard rates and you will get labor idle time variance
12:56and the other thing is every time that is once every time we are calculating the labor idle time variance
13:03it should be it is always adverse since idle time is not a very good thing you know we are
13:11not
13:11actually making use of that hours so it is to be considered as adverse fine so we are going
13:19to calculate that labor idle variance actual hours minus actual hours worked so actual hours means this
13:26is the hours which we have calculated in here 520 minus actual hours worked actual hours worked here is
13:33494 150 to 140 right so 520 minus 494 into standard rate into 5 you have to do and you
13:41will get labor
13:42idle variance for skilled labor that is 130 and in case of here and here for semi-skilled 160 minus
13:51152
13:51into 3.2 you will get 25.6 in case of unskilled 120 minus 140 into 2.8 you will
13:57get 16.8 but once we
13:58taking the sum we will get 172.4 and we have to consider it as adverse
14:06so the next variance which we have to calculate is labor rate variance so labor rate variance is
14:11simple but you might have another kind of there is another thing which you have to keep note in here
14:17as well in labor efficiency variance we took actual hours worked but in case but in the case of labor
14:25rate variance labor rate variance is the uh it is analysis of the wages which we are going to give
14:30the labor uh or you can say the employees so we it is we are taking an assumption that
14:38we will be paying the labors for the total hours we will be not subtracting the idle hours we will
14:44be
14:44just giving them wages for the total hours okay so that is the assumption assumption we are going to take
14:49so in that case uh here in labor rate variance we have to consider the actual hours which was there
14:57in the beginning of this uh video that means this hour is what we have to take one so we
15:03are going to
15:03calculate labor rate variance okay so once again i'm explaining it once again i'm telling this point
15:09that is in case we in the case of labor rate variance we have to take actual hours actual hours
15:15means this
15:15actual hours not the actual hours worked actual hours worked is considered for two things for two
15:21efficiencies especially for ideal variances and the next is for labor efficiency variance since labor
15:27efficiency variance is the analysis of the efficiency of the labor we have to get to know what is the
15:32actual hours they actually worked right so we have to take uh actual hours worked in that case and also
15:38in case of branches of this uh labor efficiency there is branches for labor efficiency which is called as
15:43labor mix variance labor sub efficiency or you cannot go and or you can also call labor yield variance
15:48as well in that variances also we have to consider act when you have to consider actual hours worked
15:54okay but in case of labor rate variance we have to take the total hours you can just call them
16:00actual
16:00hours okay so standard rate minus actual rate into actual hour standard rate minus actual rate into
16:09actual hour the same thing uh goes for all three okay so once we do that we'll get this that
16:14is for
16:14skilled labor we'll get one not four favorable uh for semi-skilled we'll get 32 adverse and for unskilled
16:20we'll get 24 favorable once we are taking the net effect we'll get 96 favorable so we are over with
16:25the three
16:25variances now we are going to the branches of labor efficiency variance so labor sub efficiency variance is
16:31what we are going to calculate next so as i've told you we have to consider actual hours worked for
16:39labor efficiency labor sub efficiency variance and labor mix variance because this both are the branches
16:45of the labor efficiency we are considering actual hours worked in labor efficiency thus we have to
16:50also consider actual hours worked for these both as well okay so now we are going to calculate
16:56sub efficiency variance so for that there is a formula let's see for sub efficiency variance total
17:05standard hours minus total actual hours into average standard rate okay so total standard hours that
17:12is 70 768 hours total actual hours they are asking we have to take what we have to take act
17:18total actual
17:19hours worked okay so that is 760 hours that will make 760 hours so 768 minus 760 into average standard
17:29rate
17:29average standard rate means we have to take sim we should we should take weighted average so we have
17:35to take 37 uh 3072 divided by 768 so that is exactly what i did here total actual total standard
17:42hours minus
17:42total actual hours worked into average standard rate so we'll get 32 favorable there is another option as
17:49well you can also opt to do labor yield variance that is what it is calculated in our study math
17:57so let's see how
17:57labor yield variance have to be calculated see here standard output from actual input minus actual output
18:05into standard rate per standard rate per unit of output so let's see first we have to calculate standard
18:12output from actual input standard output from actual input so let's see how does to be standard output from
18:20actual input as i told you standard output in case in for both standard and actual will be taking the
18:27production as the actual production will be taken for the standard as well so we are considering
18:31that the standard by using the standard hours we will be making the actual production that means
18:37960 so 960 units is the actual production so we are saying that this 960 units were actually made
18:44in the 768 hours 768 standard hours we are just multiplying it with the actual hours worked we
18:51have to know what might be the answer we are going to do that within 760 hours we have to
18:57know how
18:57much units will be able to make okay so that is how what we are calculating here standard output for
19:03actual input so actual input means the actual hours worked has to be considered here okay if there is
19:10no case of ideal variances and all there is no concept of actual hours worked as well you can
19:15just calculate the way it is okay there is no complications there but if there is an ideal
19:19variance in the question that if there is a point of ideal variance then that is a bit of
19:23complication you have to keep it not there so we are going to calculate in this bracket inside this
19:29bracket we are actually calculating standard output from actual input so once we do this we'll end up
19:34getting 950 okay and minus actual output so an actual output means 960 output 960 units is the actual
19:42output we already know so 950 minus 960 you will get negative 10 okay now we have to
19:49multiply it with what we have to multiply it with standard price we can say standard rate per unit
19:56of output per unit of output we have to know standard rate so 372 3072 is the standard amount
20:05we are we have to get to understand standard rate per unit of output per unit of output so we
20:11are
20:11dividing it with 960 itself the actual output so we'll get for one output what is the standard rate for
20:16one output we'll get so once we are multiplying this negative 10 uh with this amount we will get 32
20:25favorable so the thing is if you are going to calculate the sub efficiency variance or if you are going
20:31to
20:31calculate the yield variance the answer for both will be same will be one and the same so you'll be
20:37asking me the
20:37answer is negative 32 and why are you writing favorable let me explain if you are going to
20:43make if you are going to take only 760 hours we will make 950
20:51okay so they are saying that here we have calculated if we might have taken 760 hours instead of the
20:57768
20:58what might be the units what might be the standard output we'll get from actual input
21:03so that was 950 but actually we made 960 units which is actually a thing in labor yield variance
21:10we are calculating the yield if the yield is more than it is a favorable case so here 950 and
21:16here 960
21:17in actual case we actually made we ended up making 960 units which is a favorable thing because here we
21:23are in when when we calculated standard output from actual input we only got 950 units but we ended up
21:30making 960 units which is actually a favorable condition so that is why we are putting favorable
21:35here so for both labor sub efficiency and labor yield variance we'll be having this one and the
21:39same answer so there is only only one need to calculate any one among them okay there is only
21:45need to calculate any one among them in our study mat for this question they have calculated labor yield
21:50variance that is your choice if the question is particularly asking for this you have to calculate that
21:55so it's better if you know how to calculate both of them okay so that is how you calculate labor
22:01sub efficiency or labor yield variance now we are going to the final one that is labor mix variance
22:07so for labor mix variance how we are going to do it let's see so for that we have to
22:11take revised
22:12standard hours minus actual hours into standard rate here actual hours we'll be taking actual hours worked
22:17since it is a branch of what labor efficiency variance so that's why we'll be taking actual hours worked
22:22here and we have to calculate what is the revised standard hours on the basis of this actual hours
22:28worked so let's see so first thing we have to do is to calculate the revised standard hours so let's
22:34calculate that first so we know that
22:40this is the actual hours worked 494 152 and 140 i'm just keeping it aside okay so let's calculate
22:49revise let's calculate revised standard hours so uh when you are asking me what is revised standard
22:56hours to put it simply let me say it is actually dividing this sevens this 760 hours we are going
23:02to divide them in the ratio of standard hours we are going to divide that 760 in the ratio of
23:08standard
23:09hours so let's see so sorry 760 760 divided by 768 into 384 384 divided by 768 is a ratio
23:19of standard hours
23:20in case of say skilled labor that we are going to multiply with 760 in order to divide the 760
23:26as per the standard hour so we'll get 38 sorry 380 hours in case of semi-skilled and unskilled we
23:33are
23:33having the same same data that means uh if you're going to take a look at here 192 hours is
23:39a standard
23:39either so we'll be taking 192 divided by 768 into 760 which is actually same for both uh semi-skilled
23:48and
23:48unskilled so i'm only doing one calculation here so we'll end up with 190 hours okay so this is a
23:54revised standard hours so what is the actual hours we're going to take we're going to take this actual
24:00hours work itself okay so revised standard hours minus actual hours worked into standard rate
24:06the same going for the all three so once we do this we end up with 570 adverse 121.6
24:12favorable to 12.8
24:13favorable we are going to take the net effect and we'll get 235.6 adverse so we have calculated all
24:19the variances all the necessary variances now let's reconcile now let's just check whatever we have
24:26whatever we did we have to check if it is right or not right so let's see once we add
24:31these both
24:32we'll get we have to get this efficiency variant then our answer is right okay so let's see 235
24:38sorry 235.6 adverse plus 32 favorable we are getting 203.6 adverse so that is right now let's calculate
24:50all these three together and see we are getting 280 hours okay so 203.6 adverse plus 172.4 adverse
24:59plus 96 favorable see we are getting 280 adverse so the answer which we have got is right now the
25:07final
25:07doubt you might have is the answer which i have displayed and the actual which is there actually
25:13in our study mat is different so in case of study mat i have to say is that they are
25:19actually not
25:19following a constant method that means we'll get a bit of confusions when we are going to follow a
25:24study mat so that is a consistent method for me to calculate but if you're like comfortable with the
25:32way our study mat has calculated then go with it you shouldn't get confused with my video okay
25:38okay so you have to go with the study mat it will be easier for you once you are going
25:42to solve the
25:44questions in study mat because you already know how to solve them in the way the study mat has done
25:49so i have my own way to solve this question so that is what i've been following from the very
25:55beginning
25:56of the variance analysis so this is how i do the calculations and all and we have also reconciled
26:02and we are getting the right answer as well so i have got this consistent method and i want to
26:09follow it
26:09uh the way it is so if any of you are having any doubts you can just come and refer
26:14this video and
26:15if you are having any doubt doubts as well you can comment them below so that's all i have to
26:20say
26:20about case rate aid so i think this question is clear for you right now i cannot say the answer
26:26which is there in a study mat is wrong i'm not sure because they are reconciling it in the end
26:31part
26:31yeah so i'm not sure if it is um right to get two different answers but um the thing is
26:38that
26:38uh this way of solving the question i'm uh doing it for many questions i'm applying this kind of
26:45principle in all of my variance analysis questions okay so you can just go through my uh videos and
26:51you'll understand them okay so thank you for watching and rock your studies
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