CA Intermediate · Cost and Management Accounting · Standard Costing
Kaveri Components budgeted to make 5,000 units of a product in a month with standard labour of 3 hours per unit at Rs 80 per hour. Actual production was 4,800 units. Actual hours paid were 15,000, of which 600 hours were idle owing to a power failure. The actual wage rate was Rs 82 per hour. What is the labour efficiency variance?
The labour efficiency variance is Rs 0. Standard hours for 4,800 units are 14,400, and actual hours worked, after removing 600 idle hours from 15,000 paid, are also 14,400. Efficiency is measured on hours actually worked, so there is no variance.
- ARs 0
- BRs 4,800 Adverse
- CRs 4,800 FavourableCorrect
- DRs 48,000 Adverse
Explanation
Standard hours for actual output = 4,800 x 3 = 14,400. Actual hours worked = 15,000 - 600 idle = 14,400. Efficiency variance = (14,400 - 14,400) x 80 = Rs 0. Wait: this gives zero, so option Rs 0 is the one that follows; the other options wrongly use paid hours or budgeted output.
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