Question

Tharaldson Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 5.7 ounces $ 2.00 per ounce $ 11.40 Direct labor 0.2 hours $ 11.00 per hour $ 2.20 Variable overhead 0.2 hours $ 6.00 per hour $ 1.20 The company reported the following results concerning this product in June. Originally budgeted output 3,900 units Actual output 3,500 units Raw materials used in production 20,700 ounces Purchases of raw materials 21,800 ounces Actual direct labor-hours 530 hours Actual cost of raw materials purchases $ 42,600 Actual direct labor cost $ 13,900 Actual variable overhead cost $ 3,950 The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The labor efficiency variance for June is:A. 1,870 F
B. 2,750 U
C. 2,750 F
D. 1,870 U

Answer 1

Answer:

The correct answer is A.

Explanation:

Giving the following information:

Standard Hours=  0.2 hours

Standard Rate=  $11.00

Actual output of 3,500 units

Actual direct labor-hours 530 hours

To calculate the direct labor efficiency variance, we need to use the following formula:

Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate

Standard quantity= 0.2 hours*3,500 units= 700 hours

Direct labor time (efficiency) variance= (700 - 530)*11= $1,870 favorable

It is favorable because a lower number of hours were required to make 3,500 units than estimated.