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ACCA Applied Knowledge · Management Accounting · Monitoring performance and reporting

A company pays its production workers a higher grade of wage than standard because it employs more experienced staff. Which variances are most likely to arise as a direct result?

An adverse labour rate variance and a favourable labour efficiency variance are most likely. The higher-grade workers cost more per hour than standard, but their experience means they complete output in fewer hours than the standard allows.

  1. AAdverse labour rate variance and favourable labour efficiency varianceCorrect
  2. BFavourable labour rate variance and adverse labour efficiency variance
  3. CAdverse labour rate variance and adverse labour efficiency variance
  4. DFavourable labour rate variance and favourable labour efficiency variance

Explanation

Paying a higher hourly rate than standard produces an adverse rate variance. Experienced workers normally work faster, so fewer hours are needed than standard, giving a favourable efficiency variance. Option B reverses both effects, which would suit unskilled labour being used.

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