Given the following information, calculate the direct labor efficiency variance. Actual production in units17,000Standard labor cost per unit1/2 hour @ $20 per hourActual cost for labor$216,750 for 12,750 hoursMultiple choice question.$85,000 unfavorable$46,750 favorable$46,750 unfavorable$85,000 favorable
Question
Given the following information, calculate the direct labor efficiency variance. Actual production in units17,000Standard labor cost per unit1/2 hour @ 216,750 for 12,750 hoursMultiple choice question.46,750 favorable85,000 favorable
Solution
To calculate the direct labor efficiency variance, follow these steps:
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Calculate the Standard Labor Hours: This is done by multiplying the actual production units by the standard labor cost per unit. In this case, it's 17,000 units * 0.5 hours/unit = 8,500 hours.
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Calculate the Actual Labor Hours: This is given directly in the problem as 12,750 hours.
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Calculate the Labor Efficiency Variance: This is done by subtracting the standard labor hours from the actual labor hours and then multiplying the result by the standard labor cost per hour. In this case, it's (12,750 hours - 8,500 hours) * 85,000.
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Determine if the variance is favorable or unfavorable: If the actual labor hours are greater than the standard labor hours, the variance is unfavorable because more time was spent on production than expected. In this case, because 12,750 hours is greater than 8,500 hours, the variance is unfavorable.
So, the direct labor efficiency variance is $85,000 unfavorable.
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