The labor efficiency variance for October is: Multiple Choice $3,750 Favorable $4,375 Unfavorable $1,400 Favorable

Question

Ravena Labs., Inc. makes a single product which has the following standards:

Direct materials: 2.5 ounces at $20 per ounce

Direct labor: 1.4 hours at $12.50 per hour

Variable manufacturing overhead: 1.4 hours at 3.50 per hour

Variable manufacturing overhead is applied on the basis of standard direct labor-hours.

The following data are available for October:

3,750 units of compound were produced during the month.

There was no beginning direct materials inventory. .Direct materials purchased: 12,000 ounces for $225,000.

The ending direct materials inventory was 2,000 ounces.

.Direct labor-hours worked: 5,600 hours at a cost of $67,200.

Variable manufacturing overhead costs incurred amounted to $18,200. Variable manufacturing overhead applied to products: $18,375.

The labor efficiency variance for October is: Multiple Choice $1,400 Favorable $1,900 Unfavorable $3,750 Favorable $4,375 Unfavorable

Efficiency variance   $52,500 Unfavorable

Explanation:

Labour efficiency variance is the difference between the actual time taken to achieve a given production output less the standard hours allowed for same multiplied by the standard labour rate .

                                                                                                 Hours

3,750  units should have taken (1000×1.4 hours ) =             1,400

but did take                                                                              5,600

efficiency variance in (hours)                                                 4,200  unfavorable

Standard rate                                                                           × $12.50

Efficiency variance                                                           $52,500 Unfavorable

Efficiency variance                                                    $52,500 Unfavorable