Murdough Corporation's standard wage rate is $10.80 per direct labor-hour (DLH) and according to the standards, each unit of output requires 2.0 DLHs. In February, 1,800 units were produced, the actual wage rate was $9.80 per DLH, and the actual hours were 3,990 DLHs. The Labor Efficiency Variance for February would be recorded as a:
A) debit of $4,212.
B) credit of $4,212.
C) debit of $3,822.
D) credit of $3,822.

Question

Quizplus · Accepted Answer

The Labor Efficiency Variance is calculated as (Actual Hours - Standard Hours) x Standard Rate. In this case, the Actual Hours are 3,990 DLHs, the Standard Hours are 1,800 units x 2.0 DLHs = 3,600 DLHs, and the Standard Rate is $10.80 per DLH. Therefore, the Labor Efficiency Variance is (3,990 DLHs - 3,600 DLHs) x $10.80 per DLH = $4,212. Since the actual hours are greater than the standard hours, the variance is unfavorable and is recorded as a debit.

Murdough Corporation's Standard Wage Rate Is $10