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John Moffat.
John Moffat.-
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adarsh1997
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Hi John!
The first item of a new product took 2,000 hours to manufacture (at a labour cost of $15 per hour). A 90% learning curve was expected to apply, and it was decided to establish a standard time as the time required to manufacture the 50th item of the product, rounded to the nearest hour. The 50th item actually took 980 hours.
What was the labour efficiency variance for the 50th unit produced?1. Firstly could you explain how to calculate the variance with no information on standard cost of labour?
2. How to obtain the answer?
John Moffat
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If you are not given the standard cost of labour, then you cannot calculate the variance.
But you are given it in this question – you have typed it yourself as $15 per hour!!!
The standard time is the time for the 50th item using the learning curve rules, which I explain in detail in my lectures. You know the actual time and so you can then calculate the efficiency variance as normal.
adarsh1997
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