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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Dalton Co makes product P, with a standard of 3 labour hours per unit at $10 per hour. In March it produced 1,200 units using 3,750 hours. What is the labour efficiency variance?

The labour efficiency variance is $1,500 adverse. Producing 1,200 units should take 3,600 hours, but 3,750 were used, so 150 extra hours were worked. Valued at the standard rate of $10 per hour, this gives an adverse variance of $1,500.

  1. A$1,500 adverseCorrect
  2. B$1,500 favourable
  3. C$150 adverse
  4. D$3,750 adverse

Explanation

Standard hours for 1,200 units = 1,200 x 3 = 3,600. Actual hours were 3,750, so 150 hours excess x $10 = $1,500 adverse. Option favourable has the wrong sign; $150 omits the rate.

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