Labor efficiency variance: If the standard hours for actual production are 8,000 and actual hours used are 7,600 with a standard rate of $15 per hour, the variance is?

Labor efficiency variance: If the standard hours for actual production are 8,000 and actual hours used are 7,600 with a standard rate of $15 per hour, the variance is?

• A. $6,000 Favorable
• B. $6,000 Unfavorable
• C. $0
• D. $12,000 Favorable

Answer: (A)

Labor efficiency variance measures whether the actual labor hours used to produce a certain level of output are more or less efficient than the standard hours expected for that output, valued at the standard rate. It is calculated as (Standard hours for actual production − Actual hours) × Standard rate. Here, standard hours for actual production are 8,000 and actual hours used are 7,600, with a standard rate of $15 per hour. The difference is 8,000 − 7,600 = 400 hours. Multiply by $15 to get 400 × 15 = $6,000. Since actual hours are fewer than the standard, this is a favorable variance. Therefore, the labor efficiency variance is $6,000 favorable.

Labor efficiency variance measures whether the actual labor hours used to produce a certain level of output are more or less efficient than the standard hours expected for that output, valued at the standard rate. It is calculated as (Standard hours for actual production − Actual hours) × Standard rate.

Here, standard hours for actual production are 8,000 and actual hours used are 7,600, with a standard rate of $15 per hour. The difference is 8,000 − 7,600 = 400 hours. Multiply by $15 to get 400 × 15 = $6,000. Since actual hours are fewer than the standard, this is a favorable variance.

Therefore, the labor efficiency variance is $6,000 favorable.