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CMA Intermediate · Cost Accounting · Standard Costing and Variance Analysis

Standard for one unit of a product at Surat Textiles: 5 hours at ₹40 per hour. In a month, 800 units were produced, with 4,200 hours worked and paid at ₹40 per hour. What is the labour efficiency variance?

The labour efficiency variance is ₹8,000 Adverse. Output of 800 units should take 4,000 standard hours, but 4,200 hours were used. The 200 excess hours valued at the standard rate of ₹40 give the adverse variance.

  1. A₹8,000 Favourable
  2. B₹8,000 AdverseCorrect
  3. C₹6,000 Adverse
  4. D₹16,000 Adverse

Explanation

Standard hours for actual output = 800 x 5 = 4,000. Efficiency variance = (Standard hours - Actual hours worked) x Standard rate = (4,000 - 4,200) x 40 = ₹8,000 Adverse. Using the 4,200 hours only would ignore the output-based standard.

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