Palo Corp. manufactures one product with a standard direct labour cost of 2 hours at £6.00 per hour. During March, 500 units were produced using 1,050 hours at £6.10 per hour. The unfavourable direct labour efficiency variance is
A)£100.
B)£105.
C)£300.
D)£305.

Question

Quizplus · Accepted Answer

The direct labour efficiency variance is calculated as (Actual Hours - Standard Hours) x Standard Rate. For this scenario, Standard Hours for 500 units = 500 units * 2 hours/unit = 1000 hours. Actual Hours = 1050 hours. Therefore, the variance is (1050 hours - 1000 hours) * £6.00/hour = 50 hours * £6.00/hour = £300. This variance is unfavourable because more hours were worked than were planned, indicating less efficiency.

Palo Corp Manufactures One Product with a Standard Direct Labour Cost