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ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

A company replaces skilled workers with cheaper, less experienced staff to reduce wage costs. Which pair of labour variances is most likely to result?

A favourable rate variance and an adverse efficiency variance are most likely. Cheaper, less experienced workers are paid below the standard rate, but they usually take longer to complete the work, so more hours are used than the standard allows.

  1. AFavourable rate variance and adverse efficiency varianceCorrect
  2. BAdverse rate variance and favourable efficiency variance
  3. CFavourable rate variance and favourable efficiency variance
  4. DAdverse rate variance and adverse efficiency variance

Explanation

Less experienced staff are paid less per hour than the standard, giving a favourable rate variance. They are likely to work more slowly and take more hours, giving an adverse efficiency variance. The other pairs do not match this pattern.

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