Question

The following labor standards have been established for a particular product: Standard labor-hours per unit of output 8.7 hours Standard labor rate $ 12.50 per hour The following data pertain to operations concerning the product for the last month: Actual hours worked 6,500 hours Actual total labor cost $ 78,650 Actual output 900 units What is the labor efficiency variance for the month? Multiple Choice $19,225 F $19,225 U $16,093 F $16,625 F

Answer 1

Labor efficiency variance

= Standard hours x Standard rate – Actual hours x Standard rate

Standard hours for actual production

= Standard hours per unit x Number of units

= 8.7 x 900

= 7,830 hours

So, Labor efficiency variance

= 7,830 x $12.50 – 6,500 x $12.50

= $ 97,875 - $ 81,250

= $ 16,625 Favorable

The variance is favorable as the actual hours used is less than the standard hours required for production meaning that the labor has worked more efficiently

So, as per above discussion, option D is the correct option