CA Intermediate · Cost and Management Accounting · Standard Costing
Kaveri Textiles has a standard labour rate of Rs 80 per hour and allows 3 hours per unit. In a month, 2,000 units were produced. Workers were paid for 6,300 hours at Rs 82 per hour, of which 200 hours were idle due to a power failure. Labour efficiency variance is:
Labour efficiency variance is Rs 8,000 Adverse. Standard hours for 2,000 units are 6,000, while hours actually worked are 6,100 after excluding 200 idle hours. The 100 excess hours are valued at the standard rate of Rs 80.
- ARs 8,000 AdverseCorrect
- BRs 16,000 Adverse
- CRs 24,000 Adverse
- DRs 8,000 Favourable
Explanation
Standard hours = 2,000 x 3 = 6,000. Actual hours worked = 6,300 - 200 = 6,100. Efficiency variance = (6,000 - 6,100) x Rs 80 = Rs 8,000 Adverse. Using 6,300 paid hours would give Rs 24,000, wrongly including idle time, which is a separate variance.
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