CMA Final · Strategic Cost Management · Learning Curve
Standard time for the first 4 units of a product was set using an 80% learning curve (cumulative average basis) with a first-unit time of 100 hours. Actual hours taken for the 4 units were 300, and the wage rate is ₹40 per hour. What is the labour efficiency variance?
The variance is ₹1,760 adverse. The learning-adjusted standard for 4 units is 256 hours, but 300 hours were actually used. The 44 extra hours at ₹40 per hour give an adverse efficiency variance of ₹1,760.
- A₹1,760 adverseCorrect
- B₹1,760 favourable
- C₹4,000 favourable
- D₹800 favourable
Explanation
Standard hours for 4 units = 4 × 100 × 0.8 × 0.8 = 256 hours. Actual hours are 300. The efficiency variance is (256 − 300) × 40 = ₹1,760 adverse. Treating the standard as 400 hours (no learning) gives ₹4,000 favourable, which ignores the learning effect.
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