CA Intermediate · Cost and Management Accounting · Standard Costing
Standard labour for one unit of product is 3 hours at Rs 80 per hour. Actual production in a month was 2,000 units, for which 6,300 hours were paid, of which 200 hours were idle. The actual wage rate was Rs 82 per hour. What is the labour efficiency variance?
The labour efficiency variance is Rs 8,000 adverse. Standard hours for 2,000 units are 6,000, while hours actually worked were 6,100 after excluding 200 idle hours. The 100 excess hours multiplied by the standard rate of Rs 80 give the variance.
- ARs 8,000 AdverseCorrect
- BRs 16,000 Adverse
- CRs 8,000 Favourable
- DRs 24,000 Adverse
Explanation
Standard hours for actual output = 2,000 x 3 = 6,000. Actual hours worked = 6,300 - 200 = 6,100. Efficiency variance = (6,000 - 6,100) x 80 = Rs 8,000 Adverse. Using 6,300 paid hours would give Rs 24,000 A, which wrongly includes idle time; idle time is a separate variance of 200 x 80 = Rs 16,000 A.
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