The Standard Cost Card for a batch of 3,000 bottles of shampoo includes the following:
36 hours in Process 1 at £6.00 per hour
4 hours in Process 2 at £9.00 per hour
A batch of 3,000 bottles had the following usage:
40 hours in Process 1 at a total cost of £260
3)5 hours in process 2 at a cost of £35.
What are the labour efficiency and rate variances for the Process 2?
A) The Efficiency Variance is £3.50 Favourable and the Rate Variance is £4.50 Adverse
B) The Efficiency Variance is £4.50 Favourable and the Rate Variance is £3.50 Adverse
C) The Efficiency Variance is £4 Favourable and the Rate Variance is £1 Adverse
D) The Efficiency Variance is £4 Adverse and the Rate Variance is £5 Favourable

Question

Quizplus · Accepted Answer

Process 2 was faster than expected. 0.5 hours less at a standard cost of £9.00 = £4.50But the rate was higher than expected.3.5 hours at an extra £1.00 per hour = £3.50One method of calculating variances is as follows:Standard Hours x Standard Rate 4 x 9 36Difference is Efficiency Variance 4.50 FavourableActual Hours x Standard Rate 3.5 x 9 31.50Difference is Rate Variance 3.50 AdverseActual Hours x Actual Rate 3.5 x10 35

The Standard Cost Card for a Batch of 3,000 Bottles