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ACCA Applied Knowledge · Management Accounting · Standard costing system

Brill Co has a standard labour rate of $12 per hour. Actual output of 2,000 units took 4,300 hours and the total labour cost was $53,750. The standard time is 2 hours per unit. What are the labour rate and efficiency variances?

The labour rate variance is $2,150 adverse and the efficiency variance is $3,600 adverse. Actual hours at standard rate cost $51,600 against $53,750 paid. Standard hours for 2,000 units are 4,000, so the 300 excess hours at $12 are adverse.

  1. ARate $2,150 adverse; efficiency $3,600 adverseCorrect
  2. BRate $2,150 favourable; efficiency $3,600 adverse
  3. CRate $2,150 adverse; efficiency $3,600 favourable
  4. DRate $2,150 favourable; efficiency $3,600 favourable

Explanation

Rate: 4,300 x $12 = $51,600 against actual $53,750, giving $2,150 adverse. Efficiency: standard hours = 2,000 x 2 = 4,000; 300 hours excess x $12 = $3,600 adverse. Both variances are adverse because more was paid and more hours were used than standard.

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