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A company Produces units that should take 1.5 hours to make. The std rate of pay is $15 per hour. Idle time is expected to be 10% of hours paid.
They Actually produce 20000 Units. They pay $5,20,000 for 38000 hours, of which 3000 hours are idle.What is the labour Efficiency Variance?
1)$83333 A
2)$75000 A
3)$80000 A
4)$120000 AThe answer in the test is $83333.
I dont understand how.
Labour efficiency variance is the difference between actual hours worked and the hours that shouldve been worked.
Thus, 38000 hours – 3000 hours= 35000 hours actually worked
Standard Actual= 20000*1.5=30000 hours of which 10% is idle time. Thus hours worked is 27000. The difference is 8000 hours and monetary value is $120000.Am i going wrong?
ThanksYes – you are going wrong.
You need to watch the free lecture on advanced idle time variances.
You are wrong in two places.
First, they should take 20,000 x 1.5 = 30,000 hours to make.
They actually work 35,000 hours. So the variance in hours is 5,000.Secondly, the rate of pay per working hour is 15/0.9 = $16.666 per hour.
So the variance is 5,000 x $16.666 = $83,333.
Thanks Prof. Moffat!
I hadn’t seen your lecture on Advanced Idle Time. Did now. 🙂
And sorry for the accidental posting of the same question!
Regards
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