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variance-labour effiency variance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › variance-labour effiency variance

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by AvatarJohn Moffat.
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  • February 22, 2015 at 1:09 pm #229618
    AvatarMolly Sum
    Participant
    • Topics: 39
    • Replies: 53
    • ☆☆

    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.

    February 22, 2015 at 2:20 pm #229629
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54838
    • ☆☆☆☆☆

    It is favourable because they worked fewer hours than were expected – this saves money, therefore gives more profit, therefore is favourable.

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