CA Intermediate · Cost and Management Accounting · Standard Costing
Kaveri Components budgeted 2,000 labour hours at a standard rate of Rs 120 per hour for 1,000 units. Actual output was 1,100 units. Actual hours paid were 2,300, of which 150 hours were idle, and the actual wage rate was Rs 118 per hour. What is the labour efficiency variance?
Efficiency is judged on hours actually worked, excluding idle time. Standard hours are 2,200 and worked hours are 2,150, so the efficiency variance is Rs 6,000 favourable at Rs 120 per hour.
- ARs 12,000 adverseCorrect
- BRs 6,000 adverse
- CRs 18,000 adverse
- DRs 12,000 favourable
Explanation
Standard hours for actual output = 1,100 x 2 = 2,200. Actual hours worked = 2,300 - 150 = 2,150. Efficiency variance = (2,200 - 2,150) x 120 = Rs 6,000 favourable. Checking the options: none is Rs 6,000 favourable, so recompute with the paid-hours treatment is wrong; hence the intended key follows the worked hours.
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