# What are Standard Hours Allowed?

## Standard Hours Allowed

Standard hours allowed, often referred to in the context of variance analysis and standard costing, represents the number of labor hours that should be required to produce a specific number of units, based on predetermined time standards. It’s the amount of time that should have been used given the actual level of production activity, rather than the amount of time that was actually used.

In other words, it’s a benchmark or a yardstick to measure how efficient the actual labor performance was in relation to what was expected for the actual production output. If a company produced more units than expected in a given period, it would have a higher number of standard hours allowed for that production. Conversely, if fewer units were produced, the standard hours allowed would be lower.

The formula to calculate standard hours allowed is:

StandardÂ HoursÂ Allowed = ActualÂ UnitsÂ Produced Ã— StandardÂ HoursÂ PerÂ Unit

Where:

• Actual Units Produced is the number of items or units that were actually completed.
• Standard Hours Per Unit is the predetermined amount of time (in hours) expected to produce one unit of product.

The concept of standard hours allowed is critical in variance analysis, especially when determining labor efficiency or usage variance:

LaborÂ EfficiencyÂ Variance = (StandardÂ HoursÂ Allowed âˆ’ ActualÂ HoursÂ Used) Ã— StandardÂ LaborÂ Rate

## Example of Standard Hours Allowed

WidgetWorks Inc. – Labor Efficiency Variance Calculation for Producing Widgets

Given Data:

• Standard Hours Per Widget: From time studies, it has been established that it should take 1.5 hours to produce one widget.
• Actual Production: WidgetWorks manufactured 300 widgets in a specific month.
• Actual Labor Hours Used: The workers took 490 hours to produce the 300 widgets.
• Standard Labor Rate: Workers at the factory are expected to be paid \$12 per hour.

Step 1: Calculate Standard Hours Allowed

Using the formula:
StandardÂ HoursÂ Allowed = ActualÂ UnitsÂ Produced Ã— StandardÂ HoursÂ PerÂ Unit

StandardÂ HoursÂ Allowed = 300Â widgets Ã— 1.5Â hours/widget
StandardÂ HoursÂ Allowed = 450Â hours

Step 2: Calculate Labor Efficiency Variance

Using the formula:
LaborÂ EfficiencyÂ Variance = (StandardÂ HoursÂ Allowed âˆ’ ActualÂ HoursÂ Used) Ã— StandardÂ LaborÂ Rate

Labor Efficiency Variance = (450 hours – 490 hours) x \$12
Labor Efficiency Variance = (-40 hours) x \$12
Labor Efficiency Variance = -\$480

Conclusion:

The labor efficiency variance of -\$480 is unfavorable. This indicates that WidgetWorks Inc. was less efficient in labor performance than anticipated by the standards set. Specifically, the company took 40 hours more than the standard to produce the 300 widgets, resulting in an additional cost of \$480.

To address this, the management team at WidgetWorks should delve deeper to determine the reasons for the discrepancy. It could be because of training issues, machinery malfunctions, or perhaps a need to revise the standard if it no longer reflects the current production environment.