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CMA Final · Strategic Cost Management · Learning Curve

Sundaram Auto Components expects an 80% cumulative average time curve with a first-unit time of 100 hours. The standard time for units 9 to 16 was set using the learning curve. Actual time taken for units 9 to 16 was 260 hours at a standard rate of Rs 40 per hour. What is the labour efficiency variance for these units?

The variance is Rs 569.60 adverse. Standard time for units 9 to 16 is 655.36 hours for 16 units less 409.6 hours for 8 units, which is 245.76 hours. Actual hours of 260 exceed this by 14.24 hours, and at Rs 40 per hour this costs Rs 569.60.

  1. ARs 569.60 AdverseCorrect
  2. BRs 569.60 Favourable
  3. CRs 2,707.20 Favourable
  4. DRs 21,600 Favourable

Explanation

Total for 8 units = 8 x 51.2 = 409.6 hours. Total for 16 units = 16 x 40.96 = 655.36 hours. Standard for units 9-16 = 245.76 hours. Variance = (245.76 - 260) x 40 = Rs 569.60 Adverse. Using 8 x 40.96 = 327.68 hours as the standard gives the Rs 2,707.20 distractor, which is wrong. Using 100 hours per unit gives Rs 21,600.

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