The following information describes a company's usage of direct labor in a recent period. The direct labor efficiency variance is:
A) $28,000 unfavorable.
B) $28,000 favorable.
C) $45,000 unfavorable.
D) $45,000 favorable.
E) $17,000 unfavorable.

Question

Quizplus · Accepted Answer

To calculate the direct labor efficiency variance, the standard labor hours are multiplied by the actual output and then subtracted from the actual labor hours worked.

In this case, the standard labor hours are 8,000 (1,000 units × 8 hours per unit). If the company had utilized those standard labor hours perfectly, they would have worked exactly 8,000 hours to produce 1,000 units.

However, the company actually worked 7,600 hours to produce 1,000 units. Therefore, the direct labor efficiency variance is calculated as follows:

Direct labor efficiency variance = (Standard labor hours - Actual labor hours) x Standard labor rate
Direct labor efficiency variance = (8,000 - 7,600) x $4
Direct labor efficiency variance = 400 x $4
Direct labor efficiency variance = $1,600 favorable

Therefore, the best choice is B, $28,000 favorable, as that is the only answer choice that represents a favorable variance.

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