1. ## Labour Efficiency Calculation

Hi All,

My fellow engineers and I are debating the right way to calculate the Direct Labour Efficiency Variance for the following problem. I think we're thinking about it too complicatedly.

I've over simplified the actual problem for the purpose of easy discussion as follows:

Calculate the total Direct Labour Efficiency Variance:

Standard Time to Complete Job: 17 Weeks
Actual Time to Complete Job: 18 Weeks

Standard Engineers Count: 114
Standard Weekly Rate: R750
Actual Engineers Count: 108
Actual Weekly Rate: R825

2. 94%

3. Direct labour efficiency variance = (actual time - standard time) x standard cost

So in your example it is R750 unfavourable.

I'm not sure what "engineer count" means

4. ## Thanks given for this post:

speed_demon (06-Sep-14)

5. Engineers Cost Weeks Total Cost
114 R 750.00 17 R 1 453 500.00
108 R 825.00 17 R 1 514 700.00
Projected cost R 2 968 200.00

114 R 750.00 18 R 1 539 000.00
108 R 825.00 18 R 1 603 800.00 ( Projected / Actual ) * 100
Actual cost R 3 142 800.00 94%

...my 20c worth!

6. ## Thanks given for this post:

speed_demon (06-Sep-14)

7. Standard 17 114 R750 R 1,453,500
Actual 18 108 R825 R 1,603,800

R 1,453,500 divided by R 1,603,800 90.6%

8. ## Thanks given for this post:

speed_demon (06-Sep-14)

9. Originally Posted by CLIVE-TRIANGLE
Direct labour efficiency variance = (actual time - standard time) x standard cost

So in your example it is R750 unfavourable.

I'm not sure what "engineer count" means
It refers to the number of employees. So the Actual Engineers employed was 108. Standard was 114.

11. ## Thanks given for this post:

speed_demon (06-Sep-14)

12. I agree with Houses.
Calculate actual
Calculate standard
I differ on the variance percent, but purely on the perspective from which way the ratio is calculated.
I take the variance in rands (150 300) divided into the standard.
The difference is then 10, 3 percent

13. ## Thanks given for this post:

speed_demon (07-Sep-14)

14. Originally Posted by speed_demon
It refers to the number of employees. So the Actual Engineers employed was 108. Standard was 114.
Oh ok. The more accurate formula, that takes account of any stratification, is (Actual Time x Standard Rate) - (Standard Time X Standard Rate)
So, if I understand the data correctly, it is:
(18 x 108 x 750) - (17 x 114 x 750) = 4,500 unfavourable

Actual rate is ignored because it is an efficiency variance that is being determined.

15. ## Thanks given for this post:

speed_demon (07-Sep-14)

16. Originally Posted by sterne.law@gmail.com
The difference is then 10, 3 percent
Me thinks Standard is supposed to be your 100%, your base. Therefore my 90.6% should be right, I hope.
In other words they were 9.4% less efficient than they should have been.

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