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Y plc produces widgets. Each should take 0.5 hrs to make. The standard rate is $10 per hr.
Idle time is expected to be 5% of hours paid. They actually produce 10800 units. They pay
$50000 for 6000 hrs, of which 300 hrs are idle.What is the labour efficiency variance?
Are you setting me a question?! It is not me who is taking the exam 🙂
I assume that you want help, but you do not say so.They actually work 6000 – 300 = 5,700 hours.
The standard hours for the actual production are 10,800 x 0.5 = 5400 hours.
So….they took 300 hours more than they should have done.
We cost this out at the work rate which is 10/0.95 = $10.53 per hour.
So the efficiency variance is 300 x 10.53 = 3159 (adverse).
(If the ‘work rate’ confuses you, then you should watch the free lecture on this)
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