Question

Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows:

Materials:	(7 kilograms × $10 per kilogram)	$	70
Labor:	(3 hours × $22 per hour)	$	66

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

In-process beginning inventory		none
In-process ending inventory—90% complete as to labor		900	units
Units completed during the month		7,740	units
Budgeted output		8,600	units
Purchases of materials, in kilograms (AQ)		33,000
Total actual labor costs incurred	$	526,000
Direct labor hours worked (AQ)		22,000	hours
Materials purchase-price variance	$	2,900	unfavorable
Increase in materials inventory in July		1,300	kilograms
Beginning inventory of materials		0	kg.

The direct labor efficiency variance for July, to the nearest dollar, was:

Answer 1

Ans: $ 80,300 Favorable

Explanation:

1) Budgeted Hour:

Units completed during month	7740 units
Units completed under WIP ( 900 ×90%)	810 Units
Total Units Completed (a)	8550 Units
Labour Hour Required Per Unit ( b)	3 Hour
Total Standard Labour Hour Required (a×b)	25,650

2) Labor Efficiency Variance:

= ( Actual Hour - Standard Hour) × Standard Rate

= ( 22,000 - 25,650) × $ 22

= $ 80,300 Favorable

3) Variance is favorable because actual hours are less than standard hour.