Question

Tractor Corporation produces toy tractors. The company uses the following direct cost categories:

Category	Standard Inputs for 1 output	Std. Cost per input
Direct Materials	4.00	$12.50
Direct Labour	1.40	9.50
Direct Marketing	0.54	5.50

Actual performance and budgeted performance for the company is shown below:

Actual output: (in units) 5,000

Direct Materials:

Materials costs	$299,000
Input purchased and used	23,000
Actual price per input	$13.00

Direct Manufacturing Labour:

Labour costs	$ 95,000
Labour-hours of input	9,500
Actual price per hour	$10.00

Direct Marketing Labour:

Labour costs	$ 40,000
Labour-hours of input	5,000
Actual price per hour	$ 8.00

Question: What are the efficiency variances for direct manufacturing labour and direct marketing labour, respectively?

		a) $23,750 unfavourable; $12,650 favourable
		b) $38,375 unfavourable; $7,350 favourable
		c) $23,750 unfavourable; $12,650 unfavourable
		d) $23,750 favourable; $12,650 unfavourable
		e) $25,898 unfavourable; $15,133 unfavourable

Answer 1

Solution:
	Answer is c) $23,750 unfavorable; $12,650 unfavorable
Working Notes:
	Manufacturing
	Direct Labor efficiency variance = ( Actual hour x Standard rate ) - ( standard hour x Standard rate )
	= ( 9500 hours x 9.5 )   - ( ( 5000 units x 1.4 hours per units) x 9.5 )
	= ( 90,250 )   - ( 66,500 )
	= $90,250 - $66,500
	=23,750
	= $23,750 Unfavorable
Notes:	Standard hour = Actual output units x standard hours per unit
Notes:	Unfavorable as Actual labor cost at standard rate is more than standard cost at standard rate.
	Marketing
	Direct Labor efficiency variance = ( Actual hour x Standard rate ) - ( standard hour x Standard rate )
	= ( 5000 hours x 5.5 )   - ( ( 5000 units x 0.54 hours per units) x 5.5 )
	= ( 27,500)   - ( 14,850)
	= $90,250 - $66,500
	=12,650
	= $12,650 Unfavorable
Notes:	Standard hour = Actual output units x standard hours per unit
Notes:	Unfavorable as Actual labor cost at standard rate is more than standard cost at standard rate.
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