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Labour efficiency variance mock exam question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Labour efficiency variance mock exam question

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • August 21, 2017 at 8:18 pm #402830
    rambo6295
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Hi, I do not understand the solution at all sir.

    To calculate efficiency variance, I know that it is Actual hours * standard rate and you compare the answer to Standard hours * Standard Rate.

    I think I do not know how to work out standard rate for labour.

    Please could you explain.

    The question is:

    Company has budgeted labour cost of $180,000 for the production of 30,000 units per month. Each unit is budgeted to take 3 hours of labour. Actual cost is $160,000 for 28,000 and 85,000 hours were worked.

    What is the labour efficiency variance?

    Could you please explain how to get the standard rate because I still do not understand from the solution provided?

    Many thanks

    August 22, 2017 at 8:51 am #402888
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54693
    • ☆☆☆☆☆

    They budgeted on working 30,000 units x 3 hours per unit = 90,000 hours.

    The budgeted labour cost is $180,000.

    Therefore the standard rate per hour = $180,000 / 90,000 = $2 per hour.

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