Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00/kilogram) = $60.00/unit; direct labor (3.5 hours/unit × $20.00/hour) = $70.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December:The direct labor efficiency variance for December, to the nearest dollar, was:
A) $1,590 favorable.
B) $5,650 favorable.
C) $7,240 unfavorable.
D) $59,410 unfavorable.

Question

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00/kilogram) = $60.00/unit; direct labor (3.5 hours/unit × $20.00/hour) = $70.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December:The direct labor efficiency variance for December, to the nearest dollar, was:
A) $1,590 favorable. 
B) $5,650 favorable. 
C) $7,240 unfavorable. 
D) $59,410 unfavorable.

Quizplus · Accepted Answer

To calculate the direct labor efficiency variance, we need to use the following formula:

Direct labor efficiency variance = (Standard hours for actual production – Actual hours worked) x Hourly rate

The standard hours for actual production can be calculated as follows:

Standard hours for actual production = Actual units produced x Standard hours per unit

From the data given, we know that:

Actual units produced = 2,000 units

Standard hours per unit = 3.5 hours/unit

Therefore, the standard hours for actual production = 2,000 units x 3.5 hours/unit = 7,000 hours

Next, we need to calculate the actual hours worked. From the data given, we know that:

Actual hours worked = 15,600 hours

Plugging these values into the formula for direct labor efficiency variance, we get:

Direct labor efficiency variance = (7,000 – 15,600) x $20.00/hour = $7,240 unfavorable

Therefore, the correct answer is C, $7,240 unfavorable.

Shade Company Adopted a Standard Cost System Several Years Ago