A job was budgeted to require 3 hours of labor per unit at $11.00 per hour.The job consisted of 8,000 units and was completed in 22,000 hours at a total labor cost of $269,500.What is the direct labor efficiency variance?

A) $27,500 unfavorable.
B) $22,000 unfavorable.
C) $16,000 unfavorable.
D) $22,000 favorable.
E) $6,000 unfavorable.

Question

Louren Ann Arboleda · Accepted Answer

Final Answer : D, Explanation :  The budgeted labor cost for the job = 3 hours per unit × $11.00 per hour = $33.00 per unit.So, the budgeted total labor cost for 8,000 units = $33.00 per unit × 8,000 units = $264,000.The actual labor cost for the job = $269,500.So, the direct labor variance = Actual cost - Budgeted cost = $269,500 - $264,000 = $5,500 favorable.The direct labor efficiency variance is calculated as:Actual hours worked - Budgeted hours allowed × Standard labor rateThe budgeted hours allowed for the job = 3 hours per unit × 8,000 units = 24,000 hours.So, the direct labor efficiency variance = 22,000 actual hours worked - 24,000 budgeted hours allowed × $11.00 standard rate per hour = $22,000 favorable.Therefore, the answer is D) $22,000 favorable.

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