Eliezrie Corporation makes a product with the following standard costs: In January the company's budgeted production was 7,400 units but the actual production was 7,500 units. The company used 45,580 kilos of the direct material and 2,030 direct labor-hours to produce this output. During the month, the company purchased 48,500 kilos of the direct material at a cost of $53,350. The actual direct labor cost was $18,473 and the actual variable overhead cost was $7,714. 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 January is:
A)$2,200 U
B)$2,002 F
C)$2,200 F
D)$2,002 U

Question

Eliezrie Corporation makes a product with the following standard costs:  In January the company's budgeted production was 7,400 units but the actual production was 7,500 units. The company used 45,580 kilos of the direct material and 2,030 direct labor-hours to produce this output. During the month, the company purchased 48,500 kilos of the direct material at a cost of $53,350. The actual direct labor cost was $18,473 and the actual variable overhead cost was $7,714. 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 January is:
A)$2,200 U 
B)$2,002 F 
C)$2,200 F 
D)$2,002 U

Quizplus · Accepted Answer

Labor efficiency variance measures the difference between the actual hours taken by the workers and the standard hours allowed for the actual production. It is calculated as:

Labor efficiency variance = (Actual Hours - Standard Hours) x Standard Rate

Given, actual labor hours = 2,030
Standard rate = $10 per hour
Standard hours for actual production = 7,500 x 0.2 = 1,500

Standard hours for budgeted production = 7,400 x 0.2 = 1,480

Therefore, labor efficiency variance = (2,030 - 1,480) x $10 = $5,500 F

Hence, the correct answer is option C) $2,200 F

Eliezrie Corporation Makes a Product with the Following Standard Costs