When auto manufacturer BMW purchased the Rolls-Royce brand name, BMW had to hire and train a new staff of assembly workers. The new workers were paid $20 per hour, worked a total of 7600 hours, and produced 1700 cars. BMW budgeted for a standard labor rate of $26 per hour and 2.25 direct labor hours per car. What is the direct labor efficiency variance for the Rolls-Royce division?

Question

Quizplus · Accepted Answer

First, we need to calculate the standard hours allowed for production:

Standard labor hours per car = 2.25
Number of cars produced = 1700
Standard hours allowed = 2.25 x 1700 = 3,825

Next, we need to calculate the actual hours worked:

Actual hours worked = 7600

Now, we can calculate the direct labor efficiency variance:

Standard hours allowed – Actual hours worked = Direct labor efficiency variance
3,825 – 7600 = -3,775

Since the actual hours worked were greater than the standard hours allowed, the variance is unfavorable.

To calculate the dollar amount of the variance, we need to multiply the variance by the standard labor rate:

Direct labor efficiency variance x Standard labor rate = Dollar amount of variance
-3,775 x $26 = -$98,150

Since the variance is negative, it means that the Rolls-Royce division used more hours than expected, resulting in higher labor costs than budgeted. Therefore, the answer is D) $98,150 unfavorable.

When Auto Manufacturer BMW Purchased the Rolls-Royce Brand Name, BMW