Simms Limited had a favourable direct-labour efficiency variance of $8,000 for the period just ended. The actual wage rate was $0.70 more than the standard rate of $10.00. If the company's standard hours allowed for actual production totalled 10,000, how many hours did the firm actually work?

Question

Quizplus · Accepted Answer

Direct-labour rate variance = (Actual wage rate - Standard wage rate) x Actual hours
Given, Direct-labour efficiency variance = $8,000 (Favourable)
Also, Actual wage rate = Standard wage rate + $0.70
Hence, Direct-labour rate variance = $0 (since actual wage rate = standard wage rate + $0.70)
Thus, Direct-labour efficiency variance = Direct-labour rate variance + Direct-labour efficiency variance
=> $8,000 (Favourable) = $0 + Direct-labour efficiency variance
=> Direct-labour efficiency variance = $8,000 (Favourable)
Direct-labour efficiency variance = (Actual hours - Standard hours allowed) x Standard wage rate
$8,000 (Favourable) = (Actual hours - 10,000) x $10.00
Actual hours - 10,000 = 800
Actual hours = 10,000 + 800
Actual hours = 9,200

Therefore, the firm actually worked for 9,200 hours during the period just ended. The best choice is C.

Simms Limited Had a Favourable Direct-Labour Efficiency Variance of $8,000