Peanut\'s Manufacturing produces baseball equipment. The standard cost of produc

Question

Peanut's Manufacturing produces baseball equipment. The standard cost of producing one unit of model XHR is:
Material (3.50 ounces at $1.30 per ounce) $4.55
Labor (0.30 hour at $12.00 per hour) 3.60
Overhead 2.20
Total $10.35


At the start of 2008, Peanut's planned to produce 80,000 units during the year. Annual fixed overhead is $56,000 and the standard for variable overhead is $1.50 per unit.

The following information summarizes the results for 2008:
Actual production was 75,000 units.
Purchased 275,000 ounces of material at a total cost of $343,750.
Used 266,250 ounces of material in production.
Employees worked 22,000 hours and were paid $275,000.
Actual overhead incurred was $175,000.
Reference: Ref 11-6


What is the labor efficiency variance?
Answer
$13,000 favorable
$5,000 favorable
$6,000 favorable
$18,000 favorable

Explanation / Answer

Labor efficiency variance = Standard rate*(Actual hours - STandard hours) = 12.00*(22,000 - 75,000*0.3) = 12.00*(22,000 - 22,500) = 12*(-500) = -6,000, which is 6000 favorable Answer: $6,000 favorable

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