Dexter Surgical Tools has set the following perfection 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.
If Dexter Surgical Tools decides to use a practical standard instead of the perfection standard, the labour efficiency variance is likely to
A) remain unchanged.
B) increase.
C) decrease.
D) not enough information.

Question

Quizplus · Accepted Answer

A practical standard is more realistic and achievable than a perfection standard. Therefore, the labour efficiency variance is likely to decrease as the employees are expected to meet the practical standard, which is more achievable than the perfection standard. Additionally, the actual labour cost being higher than the standard cost could also contribute to a decrease in the labour efficiency variance.

Dexter Surgical Tools Has Set the Following Perfection Direct Labour