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Variance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Variance

  • This topic has 1 reply, 2 voices, and was last updated 11 months ago by John Moffat.
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  • February 12, 2022 at 4:19 am #648506
    daddotey
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    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.

    February 12, 2022 at 7:13 am #648509
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51579
    • ☆☆☆☆☆

    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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