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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › variance-labour effiency variance
Last month 27000 direct labour hours were worked at an actual cost of $236,385 and the standard direct labour hours of production were 29,880. The standard direct labour cost per hour was $8.50.
What was the labour efficiency variance ?
A.17,595 adverse , B.17,595 F , C.24,480 adverse D.24,480 F ( answer given is D)
my working :
budgeted hour 29,880
actual worked hours 27,000
variance 2,880 x $8.50 = $24,480
my answer is C but it is wrong , please explain why is favourable ? or the question must taken the actual cost compare with budgeted total cost which is :
actual cost $236,685
budget cost $253,980 so the actual cost spend less therefore is favourable ?
thank you.
It is favourable because they worked fewer hours than were expected – this saves money, therefore gives more profit, therefore is favourable.