A company budgeted for 5,000 hours of labor at a rate of $20 per hour. If the ac

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Question: A company budgeted for 5,000 hours of labor at a rate of $20 per hour. If the actual labor cost was $110,000 for 6,000 hours, what is the labor efficiency variance?

Options:

$10,000 Favorable
$10,000 Unfavorable
$20,000 Favorable
$20,000 Unfavorable

Correct Answer: $10,000 Unfavorable

Solution:

Labor Efficiency Variance = (Actual Hours - Budgeted Hours) * Budgeted Rate = (6,000 - 5,000) * $20 = $20,000 (Unfavorable)

A company budgeted for 5,000 hours of labor at a rate of $20 per hour. If the ac

Practice Questions

A company budgeted for 5,000 hours of labor at a rate of $20 per hour. If the actual labor cost was $110,000 for 6,000 hours, what is the labor efficiency variance?

$10,000 Favorable
$10,000 Unfavorable
$20,000 Favorable
$20,000 Unfavorable

Questions & Step-by-Step Solutions

A company budgeted for 5,000 hours of labor at a rate of $20 per hour. If the actual labor cost was $110,000 for 6,000 hours, what is the labor efficiency variance?

Step 1: Identify the budgeted hours. The company budgeted for 5,000 hours of labor.
Step 2: Identify the actual hours worked. The actual hours worked were 6,000 hours.
Step 3: Calculate the difference between actual hours and budgeted hours. This is 6,000 hours - 5,000 hours = 1,000 hours.
Step 4: Identify the budgeted rate per hour. The budgeted rate is $20 per hour.
Step 5: Calculate the labor efficiency variance using the formula: (Actual Hours - Budgeted Hours) * Budgeted Rate.
Step 6: Substitute the values into the formula: (6,000 - 5,000) * $20.
Step 7: Calculate the result: 1,000 hours * $20 = $20,000.
Step 8: Determine if the variance is favorable or unfavorable. Since actual hours are more than budgeted hours, the variance is unfavorable.

Labor Efficiency Variance – The difference between the actual hours worked and the budgeted hours, multiplied by the budgeted rate, indicating how efficiently labor was used.
Budgeted vs Actual Costs – Understanding the difference between budgeted costs and actual costs is crucial for variance analysis.

A company budgeted for 5,000 hours of labor at a rate of $20 per hour. If the ac

What’s inside this PDF?

A company budgeted for 5,000 hours of labor at a rate of $20 per hour. If the ac

Practice Questions

Questions & Step-by-Step Solutions

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