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A company uses standard costing. This year the standard labour cost of a product is $180.60 per
unit. The standard labour rate is $86.00 per hour. Last month 2,200 hours were worked and there
was an adverse labour efficiency variance of $8,600. This variance was caused entirely by new
working practices introduced by the company. The full effect of the new working practices is to
be incorporated into the new standard cost of the product for next year. In addition, a labour rate
increase of 10% is to be built into the new standard cost.
What is the standard cost per unit of the product for next year?Although I have no idea in which book you are finding this question, you must surely have an answer in the same book. In future ask about whatever it is about the answer that you are not clear about and then I will explain. Please do not simply set test questions and expect an answer.
Also, why are you using an old book – you should be using the current edition of a Revision Kit from one of the ACCA approved publishers.
The current standard hours per unit is 180.60/86 = 2.1 hours.
There is an adverse efficiency variance of $8,600, and therefore they must have worked 8,600 / 86 = 100 hours more than they should have. So they should have been working 2,100 hours which means that they must have produced 2,100/2.1 = 100 units. Since they actually worked 2,200 hours, they new standard time per unit is 2,200 / 100 = 2.2 hours.
The new standard rate per hour is $86.00 + (10% x $86.00) = $94.60.
Therefore the new standard cost per unit = 2.2 hours x $94.60 per hour = $208.12
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