Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked (AQ). The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour (SP).

Ally's direct labor efficiency variance for July, to the nearest dollar, was:
A) $2,000 unfavorable.
B) $4,000 unfavorable.
C) $20,000 favorable.
D) $22,000 unfavorable.
E) $26,000 unfavorable.

Question

Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked (AQ) . The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour (SP) .

Ally's direct labor efficiency variance for July, to the nearest dollar, was:

Ally's direct labor efficiency variance for July, to the nearest dollar, was:
A) $2,000 unfavorable.
B) $4,000 unfavorable.
C) $20,000 favorable.
D) $22,000 unfavorable.
E) $26,000 unfavorable.

Quizplus · Accepted Answer

The direct labor efficiency variance is calculated as (AQ - SQ) x SP. The standard hours (SQ) for actual production of 1,800 units is 1,800 units x (6,000 hours / 2,000 units) = 5,400 hours. The variance is (5,500 - 5,400) x $40 = $4,000 unfavorable.

Ally Mfg Uses a Standard Cost System and Its July Production