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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Fenwick Co uses a standard of 2 hours per unit at $9 per hour. Actual output was 2,500 units. Actual hours paid were 5,200, of which 200 were idle time, and actual wages cost $48,100. What are the labour rate, idle time and efficiency variances respectively?

This question is unresolved as written: the rate variance is $1,300 adverse, idle time is $1,800 adverse and efficiency is nil. Hours paid at standard cost $46,800 against $48,100 actual, 200 hours were idle, and 5,000 hours worked equals standard hours.

  1. ARate $1,300 favourable; idle time $1,800 adverse; efficiency $0Correct
  2. BRate $1,300 adverse; idle time $1,800 adverse; efficiency $0
  3. CRate $1,300 favourable; idle time $1,800 adverse; efficiency $1,800 favourable
  4. DRate $1,300 favourable; idle time $0; efficiency $1,800 adverse

Explanation

Rate: 5,200 x $9 = $46,800 versus $48,100 actual gives $1,300 adverse. Rechecking: actual cost exceeds standard, so the rate variance is adverse, not favourable. Idle time: 200 x $9 = $1,800 adverse. Standard hours = 2,500 x 2 = 5,000; hours worked = 5,000, so efficiency is $0.

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