Standard hours allowed definition

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What are Standard Hours Allowed?

Standard hours allowed is the number of hours of production time that should have been used during an accounting period. It is based on the actual number of units produced, multiplied by the standard hours per unit. The concept is most commonly employed in manufacturing operations where a large number of units are to be produced, and attaining a profit requires that close attention be paid to the number of hours of production.

The standard hours per unit is derived from the labor routing, which is a compilation of the normal amount of time expected to be required to manufacture a unit. The labor routing includes normal inefficiencies that are to be expected during the production process, such as downtime for machine setups, break time, and an allocation for time spent on units that are scrapped or reworked. Since this calculation is derived from a number of estimates, the resulting standard hours allowed figure is really just an approximation of what will actually happen.

What is the Standard Hours Allowed Formula?

To calculate standard hours allowed, multiply the standard hours per unit (as stated in the related labor routing) by the number of units actually produced within the reporting period. The formula is as follows:

Standard hours per unit x Actual units produced = Standard hours allowed

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Attainable and Theoretical Labor Standards

The concept of standard hours allowed is usually based on a reasonable estimate of hours required to produce a product (sometimes called an attainable standard). However, some organizations prefer to use theoretical standards, which are only attainable under perfect conditions where there is no scrap, no setup inefficiency, no breaks, no rework, and so forth. If a company is using theoretical standards, the calculated amount of standard hours allowed will be reduced, which means that there is likely to be an unfavorable variance between that number and the actual number of hours allowed.

When to Use Standard Hours Allowed

Here are four situations where tracking standard hours allowed is useful:

  • Evaluating worker productivity. A manufacturing company produces 1,000 units of a product, with a standard labor time of 2 hours per unit, meaning the expected total labor hours should be 2,000 hours. If actual labor hours exceed this, it indicates inefficiencies such as slow production or excessive downtime. By tracking standard hours allowed, managers can identify productivity issues and implement improvements to optimize labor efficiency.

  • Monitoring production cost efficiency. A furniture manufacturer estimates that each table should take 3 hours to assemble, but actual production data shows workers are taking 4 hours per unit. This variance leads to higher labor costs, reducing overall profitability. By analyzing standard hours allowed, the company can determine whether to improve worker training, adjust production processes, or invest in better equipment.

  • Calculating labor variance for cost control. A company producing electronic devices expects production workers to complete 500 units in 1,500 hours (at 3 hours per unit). However, if actual labor hours used are 1,800 hours, the business incurs an unfavorable labor efficiency variance. Tracking standard hours allowed helps the company identify whether inefficiencies are due to worker performance, defective materials, or outdated production methods.

  • Planning workforce and scheduling needs. A textile factory that produces 10,000 shirts per month, with each requiring 0.5 standard labor hours, should plan for 5,000 labor hours monthly. If actual hours used are much lower, it may indicate overstaffing, while significantly higher hours suggest a workforce shortage. Tracking standard hours allowed enables better workforce scheduling, ensuring optimal labor utilization and reducing overtime costs.

Example of Standard Hours Allowed

ABC International produces 500 green widgets during April. The labor routing states that each unit should require 1.5 hours of labor to produce. Therefore, the standard hours allowed is 750 hours, which is calculated as 500 units multiplied by 1.5 hours per unit.