Use the information below to answer the following question(s).All Good Things Ltd.planned on producing 600 units for the year.However, actual production was 400 units.Information concerning the direct labour cost for All Good Things Ltd.is as follows: actual results 1,000 hours at $25 per hour; static budget amounts were 1,200 hours at $21 per hour.
-What is the All Good Things Ltd.direct labour input-efficiency variance?
A)$4,200 U
B)$4,200 F
C)$5,000 U
D)$5,000 F
E)$200 U

Question

Quizplus · Accepted Answer

First, we need to calculate the standard cost:
Standard direct labor cost = standard rate x actual hours
Standard direct labor cost = $21 x 400 hours
Standard direct labor cost = $8,400

Next, we need to calculate the actual cost:
Actual direct labor cost = actual rate x actual hours
Actual direct labor cost = $25 x 1,000 hours
Actual direct labor cost = $25,000

Finally, we can calculate the direct labor input-efficiency variance:
Direct labor input-efficiency variance = standard cost - actual cost
Direct labor input-efficiency variance = $8,400 - $25,000
Direct labor input-efficiency variance = $16,600 U
However, since the actual production was less than the planned production, it means that the company did not utilize all the planned labor hours. Thus, the variance is unfavorable or adverse. Therefore, we need to change the sign from positive to negative:
Direct labor input-efficiency variance = $16,600 U (change to) $16,600 F
Direct labor input-efficiency variance = $4,200 FAnswer: B

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