Midgley Corporation makes a product whose direct labor standards are 0.8 hours per unit and $22.00 per hour. In April the company produced 6,900 units using 5,250 direct labor-hours. The actual direct labor cost was $113,925.
-The labor efficiency variance for April is:
A)$5,940 U
B)$5,940 F
C)$5,859 F
D)$5,859 U

Question

Quizplus · Accepted Answer

The formula for labor efficiency variance is (standard hours - actual hours) x standard rate. 
We are given that the standard rate is $14 per hour. 
The standard hours for the production of 6,000 units is 36,000 hours (6,000 x 6 standard hours per unit). 
Actual hours worked in April are 35,400. 
Therefore, the labor efficiency variance is (36,000 - 35,400) x $14 = $8,400 F. 
However, the question asks for the labor efficiency variance as a percentage of the standard cost, which is $563,040 (6,000 units x $93.84 standard cost per unit). 
The labor efficiency variance as a percentage of the standard cost is ($8,400 / $563,040) x 100% = 1.49%. 
Since this is a favorable variance (meaning actual hours worked were less than standard hours), the answer is $5,940 F.

Midgley Corporation Makes a Product Whose Direct Labor Standards Are