Which of the following statements about variances is true?

The question below is based on the following standard and actual data of a production order

Which of the following statements about variances is true?
A . The material price vanance for Component A is favorable by S10
B . The labor pnce variance is unfavorable by S20
C . The material usage variance for Component B is favorable by $36
D . The labor efficiency variance is favorable by S20

View Answer

Answer: D

Explanation:

The labor efficiency variance is the difference between the standard labor hours allowed for the actual output and the actual labor hours used, multiplied by the standard labor rate. In this case, the standard labor hours allowed for 100 pieces are 0.5 * 100 = 50 hours. The actual labor hours used are 48 hours. The standard labor rate is $10 per hour. Therefore, the labor efficiency variance = (50 – 48) * $10 = $20 favorable. This means that the actual labor hours used were less than the standard labor hours allowed, which indicates a higher labor efficiency12

References:

1: CPIM Part 2 – Section B – Module 2 – Session 2 – Variance Analysis

2: CPIM Part 2 – Section B – Module 2 – Session 3 – Variance Analysis Example