Question

The Fime Corporation uses a standard costing system. The following data have been assembled for December:

Actual direct labor-hours worked		5,300	hours
Standard direct labor rate	$	8	per hour
Labor efficiency variance	$	3,200	Unfavorable

The standard hours allowed for December’s production is:

Multiple Choice

• 4,500 hours

• 4,900 hours

• 5,300 hours

• 5,700 hours

Answer 1

The Fime corporation have an unfavourable labor efficiency variance of 3200. Labor efficiency variance is the measure of difference between standard cost of actual number of direct labor hours utilised and standard hour of direct labor for the output achieved. Here, the unfavourable labor efficiency shows the lower productivity of direct labor. We have equation for labor efficiency variance,

(Actual hour x Standard rate) - (Standard hour x Standard rate)

Actual hour = 5,300 hours (given)

Standard rate = $ 8 per hour (given)

Standard hour =?

We need to find out standard hours allowed.

So by putting the given values in equation, we get,

(5,300 x 8) - (S.H x 8) = -3,200

42,400 - 8 S.H = - 3,200

8 S.H = 45,600

S.H = 45,600/8

S.H = 5,700

Therefore, standard hours = 5,700 hours.

Hence, Option D is the correct answer.

SUMMARY:

Here we have an unfavourable efficiency variance, so it will shown as negative value in the equation. By solving the equation, we get 5,700 hours as standard hour applied for December's production. Hence, Option D is the correct answer.