ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
Standard labour is 3 hours per unit at $12.00 per hour. Dorset Co produced 1,200 units, using 3,750 hours at an actual rate of $12.40 per hour. What is the labour efficiency variance?
The labour efficiency variance is $1,800 adverse. Standard hours for 1,200 units are 3,600, but 3,750 hours were used, so 150 hours were excess. These are valued at the standard rate of $12 per hour, giving $1,800 adverse.
- A$1,800 adverseCorrect
- B$1,800 favourable
- C$1,500 adverse
- D$1,860 adverse
Explanation
Standard hours for 1,200 units are 1,200 x 3 = 3,600. Actual hours were 3,750, which is 150 hours over. Valued at the standard rate: 150 x $12 = $1,800 adverse. $1,500 adverse is the rate variance (3,750 x $0.40), and $1,860 wrongly values the hours at the actual rate.
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