Question

Solly Corporation produces a product for national distribution. Standards for the product are: Materials: 12 ounces per unit at 60¢ per ounce. Labor: 2 hours per unit at $8 per hour. During the month of December, the company produced 1,000 units. Information for the month follows: Materials: 14,000 ounces purchased and used at a total cost of $7,700. Labor: 2,500 hours worked at a total cost of $20,625. The labor efficiency variance is:

Answer 1

Answer:

$625 unfavorable

Explanation:

Labor rate variance is the difference between the actual and standard labor rate at actual quantity. This measures the rate efficiency of labor payment which was estimated and actually incurred.

Formula

Labor rate variance = ( Standard Rate - Actual Rate ) x Actual rate

As per given data

Standard Labor rate = ($8 - $20,625/2,500) x 2,500 hours

Standard Labor rate = ($8 - $8.25 ) x 2,500 hours

Standard Labor rate = -0.25 x 2500 hours

Standard Labor rate = -$625 unfavorable

Standard Labor rate = $625 unfavorable

Answer 2

Answer:

Efficiency variance    $4,000 unfavorable

Explanation:

Labour efficiency variance is the difference between the actual time taken to achieve a given production output less the standard hours allowed for same multiplied by the standard labour rate .

                                                                                                 Hours

1000 units should have taken (1000× 2 hours)                     2,000

but did take                                                                              2,500

efficiency variance in (hours)                                              500 unfavorable

Standard rate                                                                               × $8

Efficiency variance                                                              4,000 unfavorable