Question

Assume the following information appears in the standard cost card for a company that makes only one product:

	Standard Quantity or hours		Standard Price or Rate			Standard Cost
Direct materials	5	pounds	$	11.00	per pound	$	55.00
Direct labor	2	hours	$	17.00	per hour	$	34.00
Variable manufacturing overhead	2	hours	$	3.00	per hour	$	6.00

During the most recent period, the following additional information was available:

• 20,000 pounds of material was purchased at a cost of $10.50 per pound.
• All of the material that was purchased was used to produce 3,900 units.
• 8,000 direct labor-hours were recorded at a total cost of $132,000.

What is the direct labor efficiency variance?

Multiple Choice

• $3,400 F

• $3,400 U

• $3,300 F

• $3,300 U

Answer 1

Answer: $ 3,400 U

Calculation of Direct labor efficiency variance is as follows:

Direct labor efficiency variance = ( SH - AH ) * SR

= ( 7,800 - 8,000 ) * $ 17.00

= $ 3,400 U

Thus, Direct labor efficiency variance is $ 3,400 U

Working note:

Calculation of Standard labor hours allowed (SH):

Standard labor hours allowed (SH) = Actual production * Standard labor hours per unit

= 3,900 units * 2 labor hours

= 7,800 hours.

Where,

AH =	Actual Direct labor hours
SH =	Standard Direct labor hours
AR =	Actual Direct labor rate per hour
SR =	Standard Direct labor rate per hour