Question

Your local pie shop produces pumpkin pies that everyone loves. Over the years, they have honed their production process and have been able to set standard costs for the production of each pie. For this year, they have set the following budgeted amounts:

	Budgeted Quantity Per Pie	Budgeted Price Per Pie
Pie ingredients	2 lbs per pie	$6.25 per lb
Direct Labor	.2 hours	$13 per hour

For October, they produced 2,000 pies using 4,200 lbs of ingredients (ingredients were purchased AND used in October) at an average actual cost of $6 per lb. They used 360 direct labor hours at an average hourly rate of $14 per hour.

For October, what is the labor efficiency variance?

Answer 1

• Labor Efficiency Variance = $ 520 favourable

Labour Efficiency Variance
(	Standard Hours = 2000 pies x 0.2 std hrs	-	Actual Hours	)	x	Standard Rate
(	400	-	360	)	x	$                        13.00
	520
	Variance		$                  520.00			Favourable-F