ACCA Applied Skills · Performance Management · Standard costing
A company reports an adverse labour efficiency variance together with a favourable labour rate variance. Which explanation is most consistent with both?
Using cheaper, less skilled workers is the consistent explanation. They are paid below the standard rate, giving a favourable rate variance, but they work more slowly, so more hours are needed per unit and the efficiency variance is adverse.
- ACheaper, less skilled workers were usedCorrect
- BMore highly skilled, higher-paid workers were used
- COvertime premiums were paid more than planned
- DA machine breakdown caused workers to wait
Explanation
Lower-skilled staff are paid less than the standard rate (favourable rate) but take longer per unit (adverse efficiency). Skilled higher-paid staff would give the opposite pattern. Overtime would be adverse rate, and machine breakdown creates idle time rather than a favourable rate.
Did you get it right without looking?
One question tells you little. A timed set on Standard costing shows your real accuracy, how long you take and where you lose marks.
More Standard costing questions
- Kestrel Ltd budgeted to use 4,000 kg of material at a standard price of $5.00 per kg. It actually bought and used 4,200 kg at a cost of $20,…
- Delta Ltd's original standard labour rate was $14 per hour. Following a national wage agreement, the revised standard rate is $15.50. Actual…
- Dunmore Co's standard is 3 kg of material per unit at $5 per kg. Actual output was 1,200 units, using 3,750 kg of material. What is the mate…
- Norwood Co set a standard of 3 kg of material per unit at $10 per kg. After a supplier problem, the ex-post (revised) price was $12 per kg. …
- Dale Co has a standard labour rate of $8 per hour. Last month 3,000 hours were paid for and 2,760 hours were worked. What is the idle time v…
- Which of the following is the most likely cause of an adverse material price variance combined with a favourable material usage variance?