Question

Miguez Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate				Standard Cost Per Unit
Direct materials		2.3	liters		$	7.00	per liter		$	16.10
Direct labor		0.7	hours		$	22.00	per hour		$	15.40
Variable overhead		0.7	hours		$	2.00	per hour		$	1.40

The company budgeted for production of 2,600 units in September, but actual production was 2,500 units. The company used 5,440 liters of direct material and 1,680 direct labor-hours to produce this output. The company purchased 5,800 liters of the direct material at $7.20 per liter. The actual direct labor rate was $24.10 per hour and the actual variable overhead rate was $1.90 per hour.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The labor efficiency variance for September is:

Group of answer choices

$1,540 F

$1,540 U

$1,687 U

$1,687 F

Answer 1

Standard (1 unit)				Standard (2500 units)				Actual (2500 units)
Hours	Rate	Amount		Hours	Rate	Amount		Hours	Rate	Amount
0.7	$   22.00	$   15.40		1750	$    22.00	$ 38,500.00		1680	$    24.10	$ 40,488.00
Labor efficiency variance =			(Standard Hours - Actual Hours) x Standard Rate
		=	(1750 - 1680) x $ 24.10
		=	$ 1,687.00	(Favorable)