CA Intermediate · Cost and Management Accounting · Standard Costing
Standard labour cost for a unit of product at Kaveri Engineering is 5 hours at Rs 80 per hour. In a month, 1,000 units were produced. Actual hours paid were 5,200, of which 200 hours were idle due to a power failure. Actual wage rate was Rs 82 per hour. Labour efficiency variance is:
The labour efficiency variance is nil. Standard hours for 1,000 units are 5,000, and actual hours worked excluding 200 idle hours are also 5,000. Idle time is a separate variance, so it does not enter the efficiency calculation.
- ARs 16,000 Adverse
- BRs 0Correct
- CRs 16,000 Favourable
- DRs 16,400 Adverse
Explanation
Standard hours for actual output = 1,000 x 5 = 5,000. Actual hours worked = 5,200 - 200 idle = 5,000. Efficiency variance = (5,000 - 5,000) x 80 = nil. The Rs 16,000 Adverse figure wrongly uses hours paid (5,200) and ignores idle time, which is shown separately as idle time variance.
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