Reenu Company manufactures wigs out of used dental floss. The variable cost standards for wig production developed by Reenu are as follows: Variable overhead at Reenu is based on direct labor-hours. The actual results for the month of October were as follows:
-What is Reenu's labor efficiency variance for October?
A) $2,700 favorable
B) $7,200 unfavorable
C) $9,900 unfavorable
D) $27,600 favorable

Question

Reenu Company manufactures wigs out of used dental floss. The variable cost standards for wig production developed by Reenu are as follows:  Variable overhead at Reenu is based on direct labor-hours. The actual results for the month of October were as follows: 
-What is Reenu's labor efficiency variance for October?
A) $2,700 favorable 
B) $7,200 unfavorable 
C) $9,900 unfavorable 
D) $27,600 favorable

Quizplus · Accepted Answer

To find the labor efficiency variance, we need to find the difference between the actual labor hours worked and the standard labor hours allowed, multiplied by the standard labor rate.

Actual labor hours worked = 5,000
Standard labor hours allowed for actual output = 2,500 @ 2 DLHs per wig + 1,000 @ 3 DLHs per wig = 5,500
Standard labor rate = $8 per DLH

Labor efficiency variance = (standard labor hours allowed - actual labor hours worked) x standard labor rate
= (5,500 - 5,000) x $8
= $4,000 unfavorable.

Therefore, the correct answer is C, $9,900 unfavorable, as this is the only option that matches the labor efficiency variance calculation.

Reenu Company Manufactures Wigs Out of Used Dental Floss