Question

Meow Products Ltd. in the US produces and sells scratching posts for cats. In the current year, the company had expected to sell 12 000 posts but actually produced and sold 10 000 posts.

The following information is available regarding the standard cost to produce a single post:

Direct materials: 3 feet @ 1.75 per foot

Direct labour: 15 minutes @ $0.30 per minute

In the current year, 38 000 feet of material were purchased out of which 35 000 feet were used at a cost of $1.55 per foot, and 160 000 direct labour minutes were incurred at a cost of $0.32 per minute.

The company’s direct labour efficiency variance for the current year was:

		$12 000 F
		$12 000 U
		$3000 F
		$3000 U

Answer 1

Standard rate = $0.30 per minute

Standard time to produce 1 post = 15 minutes

Actual output = 10,000 posts

Standard time to produce actual output = Standard time to produce 1 unit x Actual output

Hence, Standard time to produce actual output = 15 x 10,000

= 150,000 minutes

Actual time taken = 160,000 minutes

Direct labor efficiency variance = Standard rate (Standard time for actual output - Actual time)

= 0.30 (150,000 - 160,000)

= 0.30 x -10,000

= -$3,000

Hence, direct labor efficiency variance is $3,000 (U)

Hence, correct option is (d)

Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubts. Thanks.