The following information describes a company's usage of direct labor in a recent period. The direct labor efficiency variance is: $\begin{array}{llr}
\text { Actual hours used } &45,000\
\text { Actual rate per hour} &\$15.00\
\text {Standard rate per hour } &\$14.50\
\text {Standard hours for units produced } &47,000\
\end{array}$

A) $29,000 unfavorable.
B) $29,000 favorable.
C) $52,500 unfavorable.
D) $52,500 favorable.
E) $22,500 unfavorable.

Question

The following information describes a company's usage of direct labor in a recent period. The direct labor efficiency variance is: $\begin{array}{llr}
  \text { Actual hours used } &45,000\
 \text {  Actual rate per hour} &\$15.00\
 \text {Standard rate per hour  } &\$14.50\
 \text {Standard hours for units produced } &47,000\
\end{array}$

A) $29,000 unfavorable.
B) $29,000 favorable.
C) $52,500 unfavorable.
D) $52,500 favorable.
E) $22,500 unfavorable.

Quizplus · Accepted Answer

The direct labor efficiency variance measures the difference between the actual hours worked and the standard hours that should have been worked to produce the actual output. A favorable variance means that less labor hours were used than what was expected based on the standard, while an unfavorable variance means that more labor hours were used than what was expected.

Since the answer choices only provide variance amounts and not whether they are favorable or unfavorable, we need to look at the formula for calculating the direct labor efficiency variance to determine the correct answer.

Direct Labor Efficiency Variance = (Standard Hours - Actual Hours) x Standard Rate

If the actual hours worked were less than the standard hours, then the variance will be favorable, and if the actual hours worked were more than the standard hours, then the variance will be unfavorable.

Based on the given variance code, we can see that the first digit is a positive number, which means that the actual hours worked were more than the standard hours. The variance amount is $29,000, so the only possible answer choice is (B) $29,000 favorable, since all other choices are unfavorable.

The Following Information Describes a Company's Usage of Direct Labor