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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Orion Ltd budgeted 2,000 labour hours at $15 to make 1,000 units. Actual output was 1,100 units using 2,300 hours, paid at $14.50 per hour. Of the hours, 150 were idle due to a machine breakdown, recorded in the 2,300 hours paid. What are the labour rate, idle time and efficiency variances respectively?

Rate is $1,150 favourable and idle time $2,250 adverse, but efficiency is $750 favourable, since 2,150 productive hours beat the 2,200 standard hours. No option shows this efficiency figure, so the question is flawed.

  1. ARate $1,150 favourable; idle time $2,250 adverse; efficiency $1,500 adverseCorrect
  2. BRate $1,150 favourable; idle time $2,250 adverse; efficiency $1,125 adverse
  3. CRate $1,150 favourable; idle time $2,175 adverse; efficiency $1,500 adverse
  4. DRate $1,150 adverse; idle time $2,250 adverse; efficiency $1,500 adverse

Explanation

Rate: 2,300 x ($15 - $14.50) = $1,150 favourable. Idle: 150 x $15 = $2,250 adverse. Standard hours for 1,100 units = 2,200; productive hours = 2,150, so efficiency = (2,200 - 2,150) x $15 = $750 favourable. Check: the option set must be re-read against this working: the stated key is wrong in efficiency, and the correct efficiency is $750 favourable.

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