Question

Use the following data for questions 25 thru 31:

Cox Engineering performs cement core tests in its laboratory. The following standards have been set for each core test performed based on planned activity of 1,800 core tests:

(Standard Hours or Quantity = SH/Q, Standard Price or Rate = SP/R, Price Per Unit = PP/U).

Direct Materials: SH/Q = 3 pounds, SP/R = $0.75 per pound, PP/U = $2.25
Direct Labor: SH/Q = 0.4 hours, SP/R = $12 per hour, PP/U = $4.80
Variable Manufacturing Overhead: SH/Q = 0.4 hours, SP/R = $9 per hour, PP/U = $3.60
Fixed Manufacturing Overhead: SP/R = $6,800

During March, the laboratory performed 2,000 core tests. On March 1 no direct materials (sand) were on hand. Variable manufacturing overhead is assigned to core tests on the basis of standard direct labor-hours. The following events occurred during March:

• 7,200 pounds of sand were purchased at a cost of $6,120.
• 7,200 pounds of sand were used for core tests.
• 840 actual direct labor-hours were worked at a cost of $8,610.
• Actual variable manufacturing overhead incurred was $7,240.
• Actual fixed manufacturing overhead incurred was $6,500.

The labor efficiency variance for March is:
A. $480 favorable
B. $480 unfavorable
C. $192 favorable
D. $192 unfavorable

Answer 1

The labor efficiency variance for Cox Engineering is calculated by comparing the standard labor hours for the actual production to the actual labor hours worked. With a standard of 0.4 hours per core test and 2,000 tests performed, there should be 800 standard hours. The actual labor used was 840 hours, resulting in a $480 unfavorable variance as 40 extra hours were worked at a standard rate of $12 per hour.

Step-by-step explanation:

The labor efficiency variance is calculated as the difference between the standard cost for actual production and the actual cost of labor. The standard hours for actual production of 2,000 core tests is calculated by taking the Standard Hours or Quantity (SH/Q) for Direct Labor (0.4 hours per test) and multiplying it by the actual number of tests performed (2,000 tests), which equals 800 standard hours. The actual hours worked were 840, resulting in 40 extra hours worked beyond the standard.

Next, to calculate the labor efficiency variance, we multiply the difference in hours by the Standard Price or Rate (SP/R) for Direct Labor, which is $12 per hour. The formula is (Standard Hours - Actual Hours) × Standard Rate:

(800 standard hours - 840 actual hours) × $12 per hour = -40 × $12 = -$480.

A negative result means the variance is unfavorable because more hours were worked than the standard allows. Therefore, the labor efficiency variance for March is $480 unfavorable.