The standard labour price is $10 per hour. The standard labour hours required per unit are 3. Last month 400 units were produced and 1,500 hours were used. Actual labour cost was $15,750. What are the direct labour price and efficiency variances? Price variance Efficiency variance
A)$3,000 U $750 U
B)$750 U $3,000 U
C)$750 F $3,000 F
D)$3,000 F $750 F

Question

Quizplus · Accepted Answer

To calculate the direct labour price variance, we need to compare the actual labour rate with the standard labour rate.

Actual labour rate = Actual labour cost / Actual labour hours = $15,750 / 1,500 = $10.50 per hour

Standard labour rate = $10 per hour

Direct labour price variance = (Actual labour rate - Standard labour rate) x Actual labour hours 
= ($10.50 - $10) x 1,500 = $750 U

To calculate the efficiency variance, we need to compare the actual hours worked with the standard hours allowed for the units produced.

Standard hours allowed = Standard hours per unit x Units produced = 3 x 400 = 1,200

Efficiency variance = (Standard hours allowed - Actual labour hours) x Standard labour rate 
= (1,200 - 1,500) x $10 
= $3,000 U

Therefore, the option B is correct, which is $750 U for the direct labour price variance and $3,000 U for the efficiency variance.

The Standard Labour Price Is $10 Per Hour