Skip to content

CMA Final · Strategic Cost Management · Variance Analyses

Kaveri Components Ltd. has a standard of 4 labour hours per unit at Rs 120 per hour. In a month it produced 2,500 units. Actual hours paid were 10,500, of which 500 hours were idle because of a power failure; the actual wage rate was Rs 125 per hour. What is the labour efficiency variance (excluding idle time)?

The labour efficiency variance is nil. Standard hours for 2,500 units are 10,000, and actual productive hours, after removing 500 idle hours from 10,500 paid, are also 10,000. Idle time is reported separately as the idle time variance, not as efficiency.

  1. ARs 0Correct
  2. BRs 60,000 Adverse
  3. CRs 60,000 Favourable
  4. DRs 1,20,000 Adverse

Explanation

Standard hours for actual output = 2,500 x 4 = 10,000. Actual productive hours = 10,500 - 500 = 10,000. Efficiency variance = (10,000 - 10,000) x 120 = 0. The Rs 60,000 Adverse option wrongly treats the idle 500 hours as inefficiency (500 x 120), while idle time is a separate variance.

Did you get it right without looking?

One question tells you little. A timed set on Variance Analyses shows your real accuracy, how long you take and where you lose marks.

Practise Variance AnalysesFree diagnostic mock

More Variance Analyses questions