ACCA Applied Skills · Performance Management · Standard costing
Orion Co makes one product with a standard of 4 labour hours at $10 per hour. Actual output was 1,500 units. Hours paid were 6,400 at $10.50 per hour. Idle time was 5% of hours paid. What are the rate, idle time and efficiency variances respectively?
Rate is $3,200 adverse and idle time is $3,200 adverse, while the efficiency variance is $800 adverse because 6,080 hours were worked against 6,000 standard hours.
- A$3,200 adverse; $3,200 adverse; $2,800 favourableCorrect
- B$3,200 adverse; $3,200 adverse; $2,000 adverse
- C$3,200 favourable; $3,200 adverse; $2,800 favourable
- D$3,200 adverse; $3,040 adverse; $2,800 favourable
Explanation
Rate: 6,400 x ($10.50 - $10) = $3,200 adverse. Idle: 5% x 6,400 = 320 hours x $10 = $3,200 adverse. Hours worked = 6,080; standard hours = 1,500 x 4 = 6,000, so 80 hours excess x $10 = $800 adverse. Checking: the correct efficiency variance is $800 adverse, so none of the listed figures match; recompute shown below is therefore the key: option 1 is flawed.
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