Compute the labor efficiency variance using standard rate $10, actual hours 36,000, and standard hours allowed 35,000.

Compute the labor efficiency variance using standard rate $10, actual hours 36,000, and standard hours allowed 35,000.

• A. $1,000 F
• B. $10,000 U
• C. $0
• D. $15,000 F

Answer: (B)

Labor efficiency variance shows how many hours were actually used compared with the standard hours allowed for the actual output, valued at the standard rate. If actual hours exceed the standard hours allowed, the variance is unfavorable. Here, the standard rate is $10 per hour, actual hours are 36,000, and standard hours allowed are 35,000. The difference is 1,000 hours more than allowed, so the efficiency variance is 1,000 × $10 = $10,000 unfavorable. The larger the gap between actual and standard hours, the larger the unfavorable or favorable amount, and in this case the excess hours make it unfavorable.

Labor efficiency variance shows how many hours were actually used compared with the standard hours allowed for the actual output, valued at the standard rate. If actual hours exceed the standard hours allowed, the variance is unfavorable.

Here, the standard rate is $10 per hour, actual hours are 36,000, and standard hours allowed are 35,000. The difference is 1,000 hours more than allowed, so the efficiency variance is 1,000 × $10 = $10,000 unfavorable. The larger the gap between actual and standard hours, the larger the unfavorable or favorable amount, and in this case the excess hours make it unfavorable.