f5 june 2008 question 1 prt b

They didn’t receive anything!! The efficiency variance is 20,000 favourable.

The actual hours worked in month 2 is 15,000 hours.
The standard hours for the actual production in month 2 is 8,000 tonnes x 2 hours per tonne = 16,000 hours.

So they saved 1,000 hours.

The standard pay rate is $18 per hour, but since 10% of the hours paid is idle, only 90% of the hours paid are actually worked. So the standard cost of each hour actually worked is $18 / 90% = $20.

So the labour efficiency variance = 1,000 hours x $20 per hour = $20,000.

It will help you to watch my free lectures on this (including the lectures on advanced idle time variances). The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam ell.

You are welcome 🙂