Question

Hassock Corp. produces woven wall hangings. It takes 2 hours of direct labor to produce a single wall hanging. Hassock’s standard labor cost is $16 per hour. During August, Hassock produced 10,000 units and used 20,500 hours of direct labor at a total cost of $325,000. What is Hassock’s labor efficiency variance for August?

Answer 1

Solution :

The Formula for calculating the Labor Efficiency Variance is

Labor Efficiency Variance = ( Standard Labor Hours - Actual Labour Hours) * Standard Rate

As per the information given in the question we have

Actual number of hours = 20,500   ; Standard Rate = $ 16 per hour   ;

No. of units produced = 10,000 units ; Standard labor hours per unit = 2 hours ;

Thus we have Standard labor hours as

Standard labor hours = No. of units produced * Standard labor hours per unit

= 10,000 * 2 = 20,000 hours

Applying the above information in the formula we have labor efficiency variance as

= ( 20,000 – 20,500 ) * $ 16

= - 500 * $ 16

= - $ 8,000

Thus Hassock’s labor efficiency variance for August is = $ 8,000 unfavorable