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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Calder Ltd uses standard costing. Standard labour cost is $10 per hour and each unit needs 4 standard hours. In March 1,000 units were produced. Labour hours paid were 4,300 at an actual cost of $44,000. Idle time was 200 hours. Which combination of variances is correct?

The rate variance is $1,000 adverse, idle time $2,000 adverse and efficiency $1,000 adverse. These total $4,000 adverse, matching actual cost of $44,000 less the standard cost of $40,000, with efficiency based on 4,100 hours worked against 4,000 standard.

  1. ARate $1,000 adverse; idle time $2,000 adverse; efficiency $1,000 adverseCorrect
  2. BRate $1,000 adverse; idle time $2,000 adverse; efficiency $3,000 adverse
  3. CRate $1,000 adverse; idle time $2,000 favourable; efficiency $1,000 adverse
  4. DRate $4,000 adverse; idle time $2,000 adverse; efficiency $1,000 adverse

Explanation

Rate: 4,300 x $10 = $43,000 vs $44,000 = $1,000 adverse. Idle: 200 x $10 = $2,000 adverse. Hours worked = 4,100 vs standard 4,000 gives 100 x $10 = $1,000 adverse efficiency. Total = $4,000 adverse, which equals actual $44,000 less standard $40,000, confirming the result. Efficiency of $3,000 wrongly uses 4,300 paid hours.

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