Bowser Corporation produces compressors for automobile air conditioning units. The standard quantity of labor allowed per compressor is 10 minutes and the standard wage rate is $30 per hour. In March, the company produced 20,000 compressor units using 3,200 hours of labor at a total wage cost of $102,400. What was the labor efficiency variance for March?
A) $6,400 Favorable.
B) $4,000 Unfavorable.
C) $4,000 Favorable.
D) $2,400 Unfavorable.

Question

Quizplus · Accepted Answer

The labor efficiency variance is calculated as (Actual Hours - Standard Hours) x Standard Rate. Standard hours for 20,000 units = 20,000 units x 10 minutes/unit = 200,000 minutes = 3,333.33 hours. Actual hours = 3,200 hours. Standard rate = $30/hour. Thus, variance = (3,200 - 3,333.33) x $30 = -133.33 x $30 = -$4,000, which is favorable because actual hours are less than standard hours.

Bowser Corporation Produces Compressors for Automobile Air Conditioning Units