Figure 10-9. James Company manufactures t-shirts.During the year,it manufactured 250,000 t-shirts,using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:
It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
Refer to Figure 10-9.What is James' labor efficiency variance?

Question

Figure 10-9. James Company manufactures t-shirts.During the year,it manufactured 250,000 t-shirts,using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:
 It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
Refer to Figure 10-9.What is James' labor efficiency variance?

Quizplus · Accepted Answer

To calculate labor efficiency variance, we use the formula:
(Labor standard hours for actual output - Actual hours worked) x Standard labor rate per hour
In this case,
Labor standard hours for actual output = (250,000 t-shirts) x (2 hours per t-shirt) = 500,000 hours
Actual hours worked = 2 hours per t-shirt x 250,000 t-shirts = 500,000 hours
Standard labor rate per hour = $8.50 per hour

Therefore, (500,000 - 500,000) x $8.50 = $0 variance

Since the variance is zero, James' actual labor hours worked are exactly what were expected based on the labor standards. Therefore, the labor efficiency variance is zero which means that James did not have any unfavorable or favorable variances in terms of labor efficiency during this period. Therefore, the correct answer is C) $800,000 F.