Biscuit Company has developed the following standards for one of its products. Direct labor hours is the driver used to assign overhead costs to products. The company records materials price variances at the time of purchase.
The direct labor efficiency variance is
A) $8,000 unfavorable.
B) $8,000 favorable.
C) $20,000 unfavorable.
D) $20,000 favorable.

Question

Biscuit Company has developed the following standards for one of its products. Direct labor hours is the driver used to assign overhead costs to products.  The company records materials price variances at the time of purchase.
The direct labor efficiency variance is
A) $8,000 unfavorable. 
B) $8,000 favorable. 
C) $20,000 unfavorable. 
D) $20,000 favorable.

Quizplus · Accepted Answer

To calculate the direct labor efficiency variance, we need to compare the actual hours worked with the standard hours allowed for the actual output. 
Direct labor efficiency variance = (Actual hours - Standard hours) x Standard labor rate per hour 
Given data, 
Standard hours per unit = 2 hours 
Standard labor rate per hour = $20 per hour 
Actual output = 10,000 units 
Actual hours worked = 21,000 hours 
Standard hours allowed = 2 hours x 10,000 units = 20,000 hours 
Direct labor efficiency variance = (21,000 - 20,000) x $20 = $20,000 favorable. 
Hence, the best choice is B.

Biscuit Company Has Developed the Following Standards for One of Its