ACCA Applied Skills · Performance Management · Standard costing
Brook Ltd budgets 1 standard hour per unit at $15 per hour. In June it produced 2,000 units using 2,100 hours worked; 2,250 hours were paid, so 150 hours were idle. What is the labour efficiency variance?
The efficiency variance is $1,500 adverse. Production of 2,000 units should take 2,000 hours, but 2,100 hours were actually worked, so 100 hours extra at $15 each is lost. Idle hours are excluded because they are reported in a separate idle time variance.
- A$1,500 adverseCorrect
- B$2,250 adverse
- C$3,750 adverse
- D$1,500 favourable
Explanation
Standard hours for 2,000 units = 2,000. Hours worked = 2,100. Difference of 100 hours adverse x $15 = $1,500 adverse. The $2,250 option uses 150 idle hours, and $3,750 uses hours paid (250 x $15), which wrongly includes idle time.
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