Chhom Corporation makes a product whose direct labor standards are 0.8 hours per unit and $31 per hour. In November the company produced 7,500 units using 5,500 direct labor-hours. The actual direct labor cost was $115,500. The labor efficiency variance for November is:
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Chhom Corporation makes a product whose direct labor standards are 0.8 hours per unit and $31 per hour. In November the company produced 7,500 units using 5,500 direct labor-hours. The actual direct labor cost was $115,500.
The labor efficiency variance for November is:
Labor efficiency variance occurs due to the difference between the actual hours used and the standard hours of direct labor. If the actual hours are less than the standard hours then it is a favorable balance and if actual hours are more than the standard hours then it is an unfavorable balance.
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