Skip to content

CA Intermediate · Cost and Management Accounting · Standard Costing

Standard Costing: Sharma Industries has a standard of 8 labour hours per unit at Rs 30 per hour. In a month, 1,000 units were produced. Hours paid were 8,400, of which 300 were idle due to a power failure. Actual wages paid were Rs 2,60,400. What is the labour efficiency variance?

The labour efficiency variance is Rs 3,000 adverse. Standard hours for 1,000 units are 8,000, while hours actually worked, excluding 300 idle hours, are 8,100. The 100 extra hours at the standard rate of Rs 30 give Rs 3,000 adverse.

  1. ARs 9,000 AdverseCorrect
  2. BRs 3,000 Adverse
  3. CRs 900 Adverse
  4. DRs 9,000 Favourable

Explanation

Standard hours for actual output = 1,000 x 8 = 8,000. Actual hours worked = 8,400 - 300 = 8,100. Efficiency variance = (8,000 - 8,100) x 30 = Rs 3,000 Adverse. Re-checking: 100 x 30 = 3,000, so the correct figure is Rs 3,000 Adverse; option A uses paid hours 8,400 (400 x 30 = 12,000 is not it either) and is wrong.

Did you get it right without looking?

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

Practise Standard CostingFree diagnostic mock

More Standard Costing questions