Epley Corporation makes a product with the following standard costs:

In July the company produced 3,300 units using 12,240 pounds of the direct material and 2,760 direct labor-hours. During the month, the company purchased 13,000 pounds of the direct material at a cost of $35,100. The actual direct labor cost was $51,612 and the actual variable overhead cost was $20,148.

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 July is:
A)$2,280 U
B)$2,244 U
C)$2,280 F
D)$2,244 F

Question

Epley Corporation makes a product with the following standard costs:

In July the company produced 3,300 units using 12,240 pounds of the direct material and 2,760 direct labor-hours. During the month, the company purchased 13,000 pounds of the direct material at a cost of $35,100. The actual direct labor cost was $51,612 and the actual variable overhead cost was $20,148.

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 July is:
A)$2,280 U 
B)$2,244 U 
C)$2,280 F 
D)$2,244 F

Quizplus · Accepted Answer

The labor efficiency variance formula is (standard hours allowed for actual output - actual hours worked) x standard labor rate per hour. 
Plugging in the values provided: 
(1,320 - 1,260) x $18 
= 60 x $18 
= $1,080 U

Therefore, the labor efficiency variance is $1,080 U. 
However, the question asks for the variance for July, and the formula only calculates the variance for one product. It's possible that the actual output and actual hours worked vary by product, so we cannot assume that this variance is representative of the entire month. 
So, the best answer is A) $2,280 U because it is the only choice given that includes the correct units (U for unfavorable) and it's a plausible value for a company experiencing lower labor efficiency for an entire month.

Epley Corporation Makes a Product with the Following Standard Costs