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ACCA Applied Knowledge · Management Accounting · Standard costing system

A company's standard labour rate was $14 per hour. Because of a shortage of skilled workers, it used more highly skilled staff paid $16 per hour. Which is the most likely resulting pattern of labour variances?

An adverse rate variance and possibly a favourable efficiency variance is the likely pattern. Staff were paid $16 against a $14 standard, so the rate variance is adverse. Because skilled workers usually produce faster, fewer hours may be used than standard, which can create a favourable efficiency variance.

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

Explanation

Paying $16 against a $14 standard gives an adverse rate variance. More skilled workers usually work faster, so fewer hours may be needed, giving a possibly favourable efficiency variance. A favourable rate variance would require pay below standard, which contradicts the data.

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