ExpertMedium1 markMultiple Choice
CPA · Question 10 · Area 1: Business Analysis
A company is performing a variance analysis of its direct labor costs.<br/>Standard Rate: $20/hour<br/>Standard Hours: 5,000 hours<br/>Actual Rate: $22/hour<br/>Actual Hours: 4,800 hours<br/><br/>What are the Labor Rate Variance and Labor Efficiency Variance?
A company is performing a variance analysis of its direct labor costs.<br/>Standard Rate: $20/hour<br/>Standard Hours: 5,000 hours<br/>Actual Rate: $22/hour<br/>Actual Hours: 4,800 hours<br/><br/>What are the Labor Rate Variance and Labor Efficiency Variance?
Answer options:
A.
Rate: $10,000 Favorable; Efficiency: $4,000 Unfavorable
B.
Rate: $9,600 Unfavorable; Efficiency: $4,400 Favorable
C.
Rate: $9,600 Unfavorable; Efficiency: $4,000 Favorable
D.
Rate: $10,000 Unfavorable; Efficiency: $4,000 Favorable
How to approach this question
1. Rate Variance = (Actual Price - Std Price) * Actual Quantity.<br/>2. Efficiency Variance = (Actual Quantity - Std Quantity) * Std Price.<br/>3. Positive result usually means Unfavorable (cost > std), Negative means Favorable.
Full Answer
C.Rate: $9,600 Unfavorable; Efficiency: $4,000 Favorable✓ Correct
C
Rate Variance: Paid $2 more per hour for 4,800 hours = $9,600 Unfavorable.<br/>Efficiency Variance: Used 200 fewer hours than standard. 200 hours * $20/hr standard rate = $4,000 Favorable.
Common mistakes
Multiplying Rate difference by Standard Hours; Multiplying Efficiency difference by Actual Rate.
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