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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Strategic Cost & Performance Management

Case: Sahyadri Auto Components budgets 10,000 labour hours at Rs 50 per hour. For actual production, the standard hours allowed were 9,000, hours actually paid were 9,600 of which 400 were idle, and the actual rate was Rs 52 per hour. What is the labour efficiency variance, with idle time treated separately?

The efficiency variance is Rs 10,000 adverse. Productive hours are 9,600 paid less 400 idle, or 9,200. Standard hours allowed are 9,000, so 200 hours were excessive, valued at the Rs 50 standard rate. Idle time is shown as a separate variance.

  1. ARs 10,000 AdverseCorrect
  2. BRs 30,000 Adverse
  3. CRs 20,000 Adverse
  4. DRs 25,000 Adverse

Explanation

Hours actually worked = 9,600 - 400 = 9,200. Efficiency variance = (9,000 - 9,200) x 50 = Rs 10,000 adverse. Rs 30,000 comes from using paid hours of 9,600 without removing idle time (600 x 50).

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