Hardigree Corporation makes a product that has the following direct labor standards: In May the company's budgeted production was 8,900 units, but the actual production was 8,800 units. The company used 2,820 direct labor-hours to produce this output. The actual direct labor cost was $70,218.The labor efficiency variance for May is:
A) $4,482 Unfavorable
B) $4,482 Favorable
C) $4,140 Unfavorable
D) $4,140 Favorable

Question

Hardigree Corporation makes a product that has the following direct labor standards:  In May the company's budgeted production was 8,900 units, but the actual production was 8,800 units. The company used 2,820 direct labor-hours to produce this output. The actual direct labor cost was $70,218.The labor efficiency variance for May is:
A) $4,482 Unfavorable 
B) $4,482 Favorable 
C) $4,140 Unfavorable 
D) $4,140 Favorable

Quizplus · Accepted Answer

First, we need to calculate the standard hours allowed for actual production:
Standard hours allowed = Standard direct labor hours per unit x Actual output
Standard hours allowed = 0.3 DLH per unit x 8,800 units produced
Standard hours allowed = 2,640 DLH

Next, we can calculate the labor efficiency variance:
Labor efficiency variance = Standard hours allowed - Actual hours worked x Standard labor rate
Labor efficiency variance = (2,640 DLH - 2,820 DLH) x $12 per DLH
Labor efficiency variance = -$2,160

Since the actual direct labor cost was $70,218 and the standard cost for the actual hours worked is $66,078 (2,820 DLH x $23.50 per DLH), we can also calculate the labor rate variance:
Labor rate variance = Actual direct labor cost - Actual hours worked x Standard labor rate
Labor rate variance = $70,218 - (2,820 DLH x $23.50 per DLH)
Labor rate variance = $4,140 Favorable

Adding the labor efficiency variance and the labor rate variance gives us the total direct labor variance:
Total direct labor variance = Labor efficiency variance + Labor rate variance
Total direct labor variance = -$2,160 + $4,140
Total direct labor variance = $1,980 Favorable

Therefore, the labor efficiency variance for May is $4,140 Unfavorable.

Hardigree Corporation Makes a Product That Has the Following Direct