Standard costing and variances 

A large manufacturing company in South Africa, Wits Manufacturing Co (WMC) with a diverse range of products is developing the use of standard costing throughout its divisions. A full standard costing system has already been implemented in Division A, including the use of mix and yield material variances, and attention has now turned to Division B where the main problem concerns labour. Division B makes highly complex work stations which incorporate material handling, automatic controls and robotics. Manufacture is a team effort and the team specified for work station No. 26 comprises:

2 supervisors paid R8 per hour , 10 fitters paid R6 per hour, 6 electricians paid R6 per hour, 2 electronics engineers paid R7 per hour, 4 labourers paid R4 per hour.

Output is measured in standard hours and 90 standard hours are expected for every 100 clock hours. During a particular period, the following data were recorded.

Employee Category Actual hours Actual pay (R)

Supervisors 170 1 394

Fitters 820 4 920

Electricians 420 2 562

Electronics engineers 230 1 725

Labourers 280 1 120

Total 1920 R11 721

1650 standard hours were produced.

The factory director of Division B is anxious to gain the maximum information possible from the standard costing system. He sees no reason why the normal labour efficiency variance could not be divided into sub-variances in order to show separately the effects of non-standard team composition and team productivity in a similar fashion to the material usage variance which can be sub-divided into mix and yield variances.

REQUIRED: (a) Calculate the labour rate variance. (b) Calculate the team composition variance, (ii) the team productivity variance and labour efficiency variance. (c) Comment on the meaning of the variances calculated in (b) and their weaknesses.