Dexter Surgical Tools has set the following direct labour standard: 0.5 hours at $20 per hour, for each unit of Tool #11. The company plans to produce 1200 units of Tool #11 in July; however, the actual production was 1000 units and only 900 units were actually sold. The actual labour cost for July was $22 per hour.
The labour efficiency variance for July was
A) $1200 Favourable.
B) $1200 Unfavourable.
C) $1000 Favourable.
D) $1000 Unfavourable.

Question

Quizplus · Accepted Answer

The labour efficiency variance measures the difference between the actual hours of direct labour used and the standard hours of direct labour that should have been used for the actual level of output achieved.

The standard labour hours for the production of 1000 units of Tool #11 should be: 0.5 hours x 1000 units = 500 hours.

The actual labour hours used were not given, but we can calculate it using the actual labour cost and the standard cost per hour:

500 hours x $22 per hour = $11,000

The standard cost for 1000 units of Tool #11 should be: 0.5 hours x $20 per hour x 1000 units = $10,000.

Therefore, the labour efficiency variance is:

Actual cost - Standard cost = $11,000 - $10,000 = $1000 Unfavourable.

Option D is the correct answer.

Dexter Surgical Tools Has Set the Following Direct Labour Standard