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CMA Final · Strategic Cost Management · Variance Analyses

Kaveri Engineering's standard labour cost is 4 hours per unit at Rs 150 per hour. For 2,000 units, 8,400 hours were paid at Rs 155 per hour, of which 400 hours were idle, with no idle time allowed in standards. What is the labour efficiency variance?

The labour efficiency variance is nil. Standard hours for 2,000 units are 8,000, and actual productive hours are 8,400 paid less 400 idle, which is 8,000. Idle time is reported separately as the idle time variance, not within efficiency.

  1. ARs 30,000 AdverseCorrect
  2. BRs 60,000 Adverse
  3. CRs 0
  4. DRs 30,000 Favourable

Explanation

Standard hours = 2,000 x 4 = 8,000. Actual hours worked = 8,400 - 400 = 8,000. Efficiency variance = (8,000 - 8,000) x 150 = nil. So the answer is Rs 0; the idle time of 400 hours x 150 = Rs 60,000 is a separate variance.

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