What is Standard Hours Allowed?

Standard hours allowed is a business term that refers to the total amount of hours it takes a company to produce a certain number of units. For example, suppose a company that manufactures auto parts has to make 10,000 windshield wipers. The total number of hours it takes for them to produce those 10,000 windshield wipers is the standard hours allowed for that project.

So, what is the point of knowing standard hours allowed? Well, it enables to plan a budget for an item your company needs to create because you can predict how much it's going to cost based on how long it is going to take. From there, you can workout other things, like profit margins and whether or not the project is worth pursuing, etc… Standard hours allowed is actually pretty important for any company involved in the large-scale production of tangible goods.

Calculating Standard Hours Allowed

The first thing you need to know before you can calculate standard hours allowed is your labor routing. At this point, you might be thinking, "What the heck is labor routing?" Labor routing is how long it takes to produce one single unit of the product you're selling. To figure out your labor routing, you'll need to consider things, such as equipment setup and maintenance, man-hours, breaks, etc…

Once you have figured out your labor routing, calculating standard hours allowed is a simple extrapolation. Suppose you find out it takes you three hours to manufacture one unit of your product. All you have to do then is multiply the total number of units you want to produce by three. For example, 1,000 units times 3 hours = 3,000 standard hours allowed. In reality, the numbers you work with will probably be more complex than that, but I just wanted to illustrate the simplicity of the equation.

Planning a Budget for Standard Hours Allowed

Planning a budget for standard hours allowed isn't much different than figuring out your labor routing. You already know how many hours it takes to make a single unit and to make the total number of units, so now all you have to do is figure out how much it's costing you to make a single unit and then multiply that number by standard hours allowed. For example, one unit costs $200 to make and you have $3,000 standard hours allowed. So, you just multiply 200 by 3,000 and you end up with a budget of $600,000.