Question

If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed the number of hours allowed, the labor rate variance and labor efficiency variance will be:
a)
rate = Favorable efficiency = Favorable

b)
rate = Unfavorable efficiency = Favorable

c)
rate = Favorable efficiency = Unfavorable

d)
rate = Unfavorable efficiency = Unfavorable

Answer 1

Answer:

Option D

Explanation:

As both, the actual rate and actual hours exceed the standards rate and standard hours, both rate and efficiency variance will be unfavorable.

And considering that if the actual labor rate exceeds the standard labor rate and if the actual labor-hours exceed the number of hours allowed, the total labor flexible budget variance will be unfavorable. As the variance is the difference between the Standard Cost and Actual Cost. So if both Standard rate & Standard hrs. are more than actual rate & actual hrs., Actual cost will be more than standard cost i.e. the variance will be unfavorable

Option d is correct