ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the labor efficiency variance.Multiple choice question.$10,000 U$14,400 U$10,000 F$14,400 F
Question
ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ 10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of 374,400. Compute the labor efficiency variance.Multiple choice question.14,400 U14,400 F
Solution
To calculate the labor efficiency variance, we first need to determine the standard labor hours for the actual level of output and then compare it with the actual labor hours used.
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Calculate the standard labor hours for actual output: The company produced 35,000 units and the standard labor hours per unit is 1 hour. So, the standard labor hours for the actual output is 35,000 units * 1 hour/unit = 35,000 hours.
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Compare the standard labor hours with the actual labor hours: The actual labor hours used is 36,000 hours. So, the labor efficiency variance is (Standard labor hours - Actual labor hours) * Standard labor rate = (35,000 hours - 36,000 hours) * 10/hour = -$10,000.
Since the actual labor hours used is more than the standard labor hours, the variance is unfavorable. So, the labor efficiency variance is $10,000 Unfavorable (U).
Therefore, the correct answer is $10,000 U.
Similar Questions
Multiple Choice QuestionABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the labor efficiency variance.Multiple choice question.$14,400 F$10,000 F$10,000 U$14,400 U
ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials price variance.
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