A. The labor efficiency variance is calculated as: (Actual Hours - Standard Hours for Actual Output) × Standard Rate. Actual hours are 3,200. The standard hours allowed for actual output are 2,500 hr. (2.5 hours per unit × 1000 units actually produced). The standard rate is $8. Therefore, the direct labor efficiency variance is: (3,200 - 2,500) × $8 = $5,600 unfavorable. The hours spent on production were greater than the hours allowed for the actual level of production, which gave us an unfavorable labor efficiency variance.
B. This is the labor rate variance. The question asks for the labor efficiency variance. See the correct answer for a complete explanation.
C. The labor efficiency variance is calculated as: (Actual Hours - Standard Hours for Actual Output) × Standard Rate. This answer results from using the actual rate instead of the standard rate. In addition, the variance is unfavorable because the actual hours used were greater than the standard hours for the actual output.
D. The hours spent on production were greater than the hours allowed for the actual level of production, which creates an unfavorable labor efficiency variance.
