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Thread: Labour Efficiency Calculation

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    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

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    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

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    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!
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    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%
    Houses4Rent
    "We treat your investment as we treat our own"
    marc@houses4rent.co.za www.houses4rent.co.za
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    Quote Originally Posted by CLIVE-TRIANGLE View Post
    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.

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    Diamond Member adrianh's Avatar
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    My head aches!
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    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
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Quote Originally Posted by speed_demon View Post
    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.

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    Gold Member Houses4Rent's Avatar
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    Quote Originally Posted by sterne.law@gmail.com View Post
    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.
    Houses4Rent
    "We treat your investment as we treat our own"
    marc@houses4rent.co.za www.houses4rent.co.za
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