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I need help with the question below:
A company produces units that should take 1.5 hours to make. The standard rate of pay is $15 per hour. Idle time is expected to be 10% of hours paid.
They actually produce 20,000 units. they pay $520,000 for 38,000 hours of which 3000 hours are idle.
What is the labour efficiency variance?
Could you kindly assist?
Thank you.
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and explanations.
The standard rate per hour for work done is $15/0.9 per hour (as explained in my free lectures on this).
The actual hours worked are 35,000 hours. For the actual level of production they should have worked 20,000 x 1.5 = 30,000.
Therefore the efficiency variance = (35,000 – 30,000) x 15/0.9 (adverse).
This is all explained in my free lectures on advanced idle time variances. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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