Question

Dreary Credit Agency uses a standard cost system for the processing of its credit applications. The labor standard at Dreary is 10 applications per 8 hour day at a standard cost of $15 per hour. During the last pay period, Dreary's credit agents worked 1,920 hours and processed 2,500 applications. The total labor cost for the agents during this period was $29,184. What was Dreary's labor efficiency variance for this last pay period

Answer 1

Answer:

The labor efficiency variance for this last pay period was $1,200 Favorable.

Explanation:

In order to calculate Dreary's labor efficiency variance for this last pay period, we have to calculate first the standard hours allowed for actual work using the following formula:

Standard hours

allowed  for actual work= ( Total number of applications )   ×     number of

                                           Standard number of applications    hours worked

                                         = (2.500 applications)× 8 hours

                                                 10 applications

                                         =2,000 hours

After having calculated the Standard hours allowed  for actual work, we can calculate the labor efficiency variance using the following formula:

labor efficiency variance= (Actual hours worked-Standard hours allowed  for actual work)× standard rate

                                       = (1,920-2,000)×$15

                                       =-$1,200

The Labor efficiency variance is $1,200 Favorable.

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