ELM Corporation introduced a new automated production process that has reduced the amount of labour needed, but not affected the use of materials. The standard cost system has not been changed yet to reflect this new process. Assuming the machinery is functioning properly and that workers were properly trained in its use, which of the following variances is most likely to result?
A) Favourable variable overhead spending variance
B) Favourable direct labour efficiency variance
C) Unfavourable direct labour efficiency variance
D) Favourable direct materials price variance

Question

Quizplus · Accepted Answer

The introduction of an automated production process that reduces the amount of labour needed would most likely result in a favourable direct labour efficiency variance. This is because the automation allows the company to produce the same amount or more output with less labour time, making the actual labour hours less than the standard (or expected) labour hours for a given level of production.

ELM Corporation Introduced a New Automated Production Process That Has