Direct labor idle time variance can be defined as the cost of the standby time of the labor when production has come to halt due a number of technical and other reasons. The reasons including the halt of production time include lack of orders from the management, electrical or mechanical failure of the equipments and some sort of industrial disputes. The formula of direct labor idle time can be shown as under:-
Idle Time Variance = Number of idle hours of the labor x Standard labor rate per hour
Idle time variance of the labor has a negative and adverse effect on the productivity and the profitability of the organization as it indicates the idle time with no productivity but organization has already paid for this time. This type of variance is called as adverse variance. The calculation of the idle time variance gives us a clear picture of the labor efficiency and productivity rate as compared to the calculation of labor efficiency with the help of labor rate variance.
ABC Company is a clothing brand specializing in the manufacture and sale of hand-stitched jeans trousers. ABC manufactured and sold 10,000 pairs of jeans during a period.
Information relating to the direct labor cost and production time per unit is as follows:
|Actual Rate per hour
||Standard Rate Per Hour
During the period, 800 hours of idle time was incurred. In order to motivate and retain experienced workers, DM has devised a policy of paying workers the full hourly rate in case of any idle time.
Note: 0.65 hours per unit of actual time includes the idle time.
Calculation of idle time variance and labor efficiency variance will be as follows:
Idle Time Variance:
Idle time variance = number of idle hours x standard rate
= 800 hours x $10
= $8,000 Adverse.
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