Question

The calculation of direct labour variances shows a favourable labour rate variance of​ £5,000 and an unfavourable labour efficiency variance of​ £5,000. Which of the following is the best interpretation of this​ result?

    A.  
The departmental manager was pleased with the efficiency of working and favoured all employees with a rise in wage rates.

    B.  
The employees worked inefficiently and so their wages were reduced to match the cost of the lost efficiency.

    C.  
The employees were paid the budgeted wage rate but needed extra hours of working because of a machine breakdown.

    D.  
A lower grade of employee was employed compared with the grade used for the budget, with relatively little adverse impact on efficiency.

Answer 1

Answer:-

A Favorable Labor Rate Variance indicates that the wages were actually paid at a lower rate than the budgeted rate of wages per hour.

An Unfavorable Labour Efficiency Variance indicates that the actual completion time for the said production is greater than the budgeted hours for the said production. Hence work was done inefficiently.

So, it can be said that the employees worked inefficiently and so their wages were reduced to match the cost of the lost efficiency.

Answer:- B. The employees worked inefficiently and so their wages were reduced to match the cost of the lost efficiency.