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CA Intermediate · Cost and Management Accounting · Standard Costing

Standard labour for a job at Arjun Engineering is 2 hours per unit at Rs 60 per hour. In a month, 800 units were produced. 1,700 hours were paid for at Rs 60 per hour, of which 100 hours were idle due to a power failure. Actual hours worked were 1,600. What are the labour efficiency variance and idle time variance?

Efficiency variance is nil and idle time variance is Rs 6,000 Adverse. Standard hours for 800 units equal 1,600, matching actual hours worked, so there is no efficiency variance, while the 100 idle hours paid at Rs 60 give the adverse idle time variance.

  1. AEfficiency Nil; Idle time Rs 6,000 AdverseCorrect
  2. BEfficiency Rs 6,000 Adverse; Idle time Rs 6,000 Adverse
  3. CEfficiency Rs 6,000 Adverse; Idle time Nil
  4. DEfficiency Nil; Idle time Rs 6,000 Favourable

Explanation

Standard hours for actual output = 800 x 2 = 1,600 hours. Efficiency variance = (SH - actual hours worked) x SR = (1,600 - 1,600) x 60 = Nil. Idle time variance = 100 x 60 = Rs 6,000 Adverse. Charging efficiency on 1,700 paid hours would wrongly give Rs 6,000 A efficiency, double counting idle time.

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