1,000 units were made using 3,100 labour hours paid at £11.20 per hour. The standard is 3 hours per unit at £11.00 per hour. What are the labour rate and efficiency variances?
Answer and explanation
Correct answer: D. Rate £620 adverse and efficiency £1,100 adverse
- Step 1: Rate variance = (£11.20 - £11.00) × 3,100 hours = £620, adverse because the rate paid was higher.
- Step 2: Standard hours for 1,000 units = 3,000. Hours used 3,100, so 100 hours excess.
- Step 3: Efficiency variance = 100 hours × standard rate £11.00 = £1,100, adverse.
Answer
Rate £620 adverse and efficiency £1,100 adverse.
Why not the others: The actual rate is higher than standard, so the rate variance is adverse. £1,120 values the excess hours at the actual rate of £11.20. £600 uses the wrong hours, and using more hours than standard is adverse.
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