The Fantastic Tool Company (Mexico Division) produced 100,000 saw blades during the year. Each saw blade required two hours of labour at a rate of $5.50 per hour. However, the company's standard labour rate is $5.00. Its labour efficiency variance was a favourable $55,000.
-Refer to the Figure.What are Fantastic's standard hours allowed for a volume of 100,000 blades?
A)189,000 hours
B)190,000 hours
C)210,000 hours
D)211,000 hours

Question

Quizplus · Accepted Answer

The labour efficiency variance is calculated as (Actual Hours - Standard Hours) x Standard Rate. Given a favourable variance of $55,000 and an actual rate of $5.50, but a standard rate of $5.00, we focus on the standard rate for calculations. The favourable variance indicates that the actual hours used were less than the standard hours allowed. To find the standard hours, we rearrange the variance formula: Variance = (Actual Hours - Standard Hours) x Standard Rate, so $55,000 = (200,000 hours - Standard Hours) x $5.00. Solving for Standard Hours gives us 211,000 hours as the standard hours allowed for the production of 100,000 blades.

The Fantastic Tool Company (Mexico Division) Produced 100,000 Saw Blades