Given AH × AR = $83,000 and SH × SR = $85,000, what is the direct labor efficiency variance?

Given AH × AR = $83,000 and SH × SR = $85,000, what is the direct labor efficiency variance?

• A. $2,000 F
• B. $0
• C. $2,000 U
• D. $1,000 F

Answer: (C)

Direct labor efficiency variance measures how efficiently labor hours were used to produce the actual output, evaluated at the standard rate. It is the difference between the standard cost for the actual production (SH × SR) and the actual cost (AH × AR), assuming the rate variance is being considered separately or AR equals SR. Here, the standard cost for the actual production is 85,000 and the actual cost is 83,000. The difference is 85,000 − 83,000 = 2,000 favorable. So the direct labor efficiency variance is 2,000 favorable.

Direct labor efficiency variance measures how efficiently labor hours were used to produce the actual output, evaluated at the standard rate. It is the difference between the standard cost for the actual production (SH × SR) and the actual cost (AH × AR), assuming the rate variance is being considered separately or AR equals SR.

Here, the standard cost for the actual production is 85,000 and the actual cost is 83,000. The difference is 85,000 − 83,000 = 2,000 favorable. So the direct labor efficiency variance is 2,000 favorable.