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ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

Which of the following is the most likely cause of an adverse labour rate variance combined with a favourable labour efficiency variance?

Using higher-grade, more skilled workers than the standard assumed is the likely cause. They are paid more per hour, giving an adverse rate variance, but they work faster and produce output in fewer hours, giving a favourable efficiency variance.

  1. AUse of higher-grade, more skilled workers than the standard assumedCorrect
  2. BPoor quality materials causing more rework
  3. CLack of supervision leading to slow working
  4. DA machine breakdown causing idle time

Explanation

Skilled workers cost more per hour (adverse rate) but work faster (favourable efficiency). Poor materials, weak supervision and breakdowns would cause adverse efficiency or idle time, not a favourable efficiency variance.

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