The direct labor efficiency variance is calculated as follows: (Actual Hours ? Standard Hours for Actual Output) × Standard Rate. The standard hours for the actual output were 6,500 (1.25 DLH × 5,200 actual units produced). The standard rate is $12. Thus, the direct labor efficiency variance is (6,600 ? 6,500) × $12/DLH = $1,200 unfavorable. Since the actual hours were greater than the standard hours for the actual output, the variance is unfavorable.
This is the difference between actual costs and budgeted costs (master budget). This is not the direct labor efficiency variance.
The direct labor efficiency variance is calculated as follows: (Actual Hours ? Standard Hours for Actual Output) × Standard Rate. This incorrect answer of $4,200 unfavorable results from using the standard hours for the initially planned output of 5,000 units or master budget figure (1.25 DLH × 5,000 = 6,250 DLH) instead of the standard hours allowed for the actual output.
The direct labor efficiency variance is calculated as follows: (Actual Hours ? Standard Hours for Actual Output) × Standard Rate. This incorrect answer results from using the standard hours for the actual output (1.25 DLH × 5,200 = 6,500 DLH) instead of the actual hours and the standard hours for the planned output (1.25 DLH × 5,000 = 6,250 DLH) instead of the standard hours for the actual output.
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