The following information describes a company's usage of direct labor in a recent period. The direct labor efficiency variance is:
A) $28,000 unfavorable.
B) $28,000 favorable.
C) $45,000 unfavorable.
D) $45,000 favorable.
E) $17,000 unfavorablE.

Question

The following information describes a company's usage of direct labor in a recent period. The direct labor efficiency variance is: 
A) $28,000 unfavorable. 
B) $28,000 favorable. 
C) $45,000 unfavorable. 
D) $45,000 favorable. 
E) $17,000 unfavorablE.

Quizplus · Accepted Answer

The term "efficiency" implies a comparison of actual direct labor hours worked to the standard direct labor hours allowed. A favorable variance means that the actual hours worked were less than the standard allowed hours (i.e., more efficient). An unfavorable variance means that the actual hours worked were greater than the standard allowed hours (i.e., less efficient). Therefore, since the variance is labeled as an efficiency variance, we know that it pertains to comparing actual direct labor hours worked to standard direct labor hours allowed, and since the variance is favorable, we know that the actual hours worked were less than the standard allowed hours. The amount of the favorable variance is $28,000.

The Following Information Describes a Company's Usage of Direct Labor