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  • 1.  Labor Variances

    Posted 03-14-2023 08:37 AM

    Hi! I had a question about overtime hours regarding labor rate & efficiency variances. Theoretically, what would you do if the company you worked for didn't differentiate regular hours from overtime hours works on their standard reports? So for labor efficiency: (Actual hours - standard hours allowed for work done) * standard labor rate …

    Should "actual hours" include overtime hour worked since the standard hours include them ? My issue with that is that is, wouldn't the standard rate be understated since it doesn't take into account overtime premiums? Or should it? 

    Thank you!!

    Emily



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    Emily Pawelski
    Accountant
    Hamburg NY
    United States
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  • 2.  RE: Labor Variances

    Posted 03-15-2023 12:41 AM

    Efficiency looks at how efficient an employee works whether overtime or not so you have to keep the rate standard if you change both rates and  Hrs then it would be multiple effects.

    we look at everything related to rate in rate variance where Hrs is kept standard so anything  above or lower than the standard rate would be covered in rate variance even the overtime premium

    what you are talking about is actually the total labor variance which considers both efficiency and rate.



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    Zahid Ullah Aziz
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    Original Message


  • 3.  RE: Labor Variances

    Posted 08-05-2023 01:00 PM

    I am assuming with standard hours you're on a standard cost system.  The planned OT rate would be in your overhead, and technically each individual would have a slightly different rate, but from an efficiency standpoint the hours are what matters.  The rate differences would fallout in net burden variance if the OT rate was above or below your planned rate used in burden rate calculations.  If you were trying to find the cost of inefficiency, you would likely want to normalize the per hour cost by adding up all paid costs (ST/OT) and dividing by hours worked times the hours gap in inefficiency, but most reporting will just take into account the hours inefficiency since that will be what production managers can control.



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    Thomas Dietrich CMA
    Controller
    Buford GA
    United States
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    Original Message