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ACCA Applied Skills · Performance Management · Planning and operational variances

Brindle Co budgeted 3 labour hours per unit at an original standard rate of $10 per hour. The ex-post (revised) standard is 3.5 hours per unit at $11 per hour. Actual output was 2,100 units and 7,500 hours were worked. What is the labour efficiency planning variance?

The labour efficiency planning variance is $10,500 adverse. The original standard allowed 6,300 hours for 2,100 units but the revised standard allows 7,350 hours. The 1,050 extra hours are valued at the original $10 rate, and the result is adverse because the target was unrealistic.

  1. A$10,500 adverseCorrect
  2. B$11,550 adverse
  3. C$1,650 adverse
  4. D$10,500 favourable

Explanation

Original standard hours for actual output = 2,100 × 3 = 6,300. Revised standard hours = 2,100 × 3.5 = 7,350. The planning efficiency variance is (6,300 − 7,350) × original rate $10 = $10,500 adverse. Using the revised rate gives $11,550, which is wrong. $1,650 adverse is the operational efficiency variance ((7,350 − 7,500) × $11).

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