Ortman Corporation makes a product with the following standard costs: The company reported the following results concerning this product in May. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The labor efficiency variance for May is:
A)$483 U
B)$510 U
C)$483 F
D)$510 F

Question

Ortman Corporation makes a product with the following standard costs:  The company reported the following results concerning this product in May.  The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The labor efficiency variance for May is:
A)$483 U 
B)$510 U 
C)$483 F 
D)$510 F

Quizplus · Accepted Answer

Labor efficiency variance measures the difference between the actual hours used and the standard hours allowed, multiplied by the standard hourly labor rate.

Calculation: 
Actual hours used = 9,200 hours 
Standard hours allowed = 9,000 hours 
Standard hourly labor rate = $16 per hour

Labor efficiency variance = (Actual hours used - Standard hours allowed) x Standard hourly labor rate 
= (9,200 - 9,000) x $16 
= $3,200 F

Therefore, the labor efficiency variance for May is $3,200 F, which corresponds to choice D.

Ortman Corporation Makes a Product with the Following Standard Costs