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Dear John,
Would you be so king to help me to solve two questions in the Revision Mock Exam as I cannot come to the amount shown in the answer, please?
Y Plc produces widgets.
Each should take 0.5 hrs to make.
The standard rate of pay is $10 per hour.
Idle time is expected to be 5% of hours paid.They actually produce 10800 units.
They pay $50,000 for 6,000 hours, of which 330 hours are idle.What is the labour efficiency variance?
The correct answer is $2842 (adverse)
And I also cannot solve the one where we need to find excess idle time variance,
where correct answer is $316 (adverse)What I get is:
Labour Efficiency Variance
Shd be 5400
Actual 5670
270(A) x $10 = $2700Exstra Idle Time Variance
Shd be (6000 x 5%) 300 hrs
Actual 330 hrs
30 hrs (A) x $10 = $300Thanks, Yana.
Although they are paying at the rate of $10 per hour, because they are idle for 5% of the time, it means that it is costing $10 to get only 0.95 hours of actual work.
So if 0.95 working hours are costing us $10, it means that the cost for 1 working hour is $10 / 0.95 ($10.526).
The efficiency variance and the excess idle time variances are both looking at whether we had too many or too few working hours, and so they should be costed out at the cost per working hour of $10.526.
Otherwise your workings are correct:
Efficiency: 270 x $10.526 = $2842
Excess idle time: 30 x $10.526 = $316
(The rate of pay variance is calculated using the standard rate of pay i.e. $10 per hour. It is just the efficiency and excess idle time that are calculated using $10.526).
You might find my free lecture on excess idle time useful 🙂
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