Question

a credit agency uses standard cost system for the processing of its credit applications. the labor standard at the credit agency is 10 applications per 8 hour day at a standard cost of $15 per hour.

during the last pay period, the credit agency's employees worked 1920 hours and proceeds 2500 applications.

the total labor cost for the employees during the period was $29,184. what was the credit agency's labor efficiency variance for the last pay period?

Answer 1

Solution:
	Labor efficiency variance for this last pay period	$1,200 Favorable
Working Notes:
	10 applications per 8 hour day is standard
	Actual applications proceeds 2500
	Standard hours for 2500 application = (2500/10) x 8 = 2000 hours
	Standard rate = $15 per hour
	Actual hours = 1920 hours
	Direct Labor efficiency variance = ( Actual hour x Standard rate ) - ( standard hour x Standard rate )
	= ( 1920 hours x 15 )   - ( 2000 hours x 15 )
	= $28,800 - $30,000
	= -$1,200
	=$1200   Favorable
Notes:	Negative value shows Standard cost for actual hours is lower than Standard cost for standard hours, that will be favorable for the company
Please feel free to ask if anything about above solution in comment section of the question.