ECONOMICS

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COST ACCOUNTING

STANDARD COSTING AND VARIANCE ANALYSIS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Direct labour cost data relating to last month is as follows:Actual hours worked 28, 000Total direct labour cost $117, 600Direct labour rate variance $8, 400 adverseDirect labour efficiency variance $3, 900 favourableTo the nearest thousand hours, what were the standard labour hours for actual production last month?
A
31, 000 hrs
B
27, 000 hrs
C
29, 000 hrs
D
25, 000 hrs
Explanation: 

Detailed explanation-1: -Labour Cost Variance = Standard Cost of Labour – Actual Cost of Labour.

Detailed explanation-2: -Calculate the direct labor hours The figure is obtained by dividing the total number of finished products by the total number of direct labor hours needed to produce them. For example, if it takes 100 hours to produce 1, 000 items, 1 hour is needed to produce 10 products and 0.1 hours to produce 1 unit.

Detailed explanation-3: -Finally, the total direct labor variance is calculated by multiplying the standard rate by the standard quantity of hours, then subtracting the product of the actual rate and the actual number of hours.

Detailed explanation-4: -Direct labor efficiency variance measures the cost of the difference between the expected number of labor hours required for the operations and the actual number of labor hours required for the operations.

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