A. This is the difference between the capacity hours (100,000) and the standard hours (88,000), multiplied by the standard rate. However, in the direct labor efficiency variance, we need to use actual hours (94,000) instead of capacity hours (100,000). Furthermore, the actual hours used was greater than the standard hours for the actual output, and so the variance is unfavorable. See the correct answer for a complete explanation.
B. The labor efficiency variance is calculated follows: (Actual Hours - Standard Hours for Actual Output) × Standard Rate. The actual hours worked are 94,000, and the standard hours for the actual output are 88,000 (4 hours per unit multiplied by 22,000 units produced). The standard labor hourly rate is $9. The labor efficiency variance is (94,000 - 88,000) × $9 = 54,000 unfavorable. The variance is unfavorable (positive) because the actual hours were greater than the standard hours for the actual output, and this is a cost variance.
C. The labor efficiency variance is calculated follows: (Actual Hours - Standard Hours for Actual Output) × Standard Rate. There are three mistakes made to get this answer.
First, the actual labor rate ($10) is used instead of the standard rate of $9. Second, the standard hours (88,000) is used instead of actual hours (94,000). Third, the capacity hours (100,000) is used instead of standard hours (88,000). See the correct answer for a complete explanation.
D. The labor efficiency variance is calculated follows: (Actual Hours - Standard Hours for Actual Output) × Standard Rate. There were two mistakes made to get this result.
First the actual labor rate ($10) is used instead of the standard rate of $9. Second, the capacity hours (100,000) is used instead of standard hours for the actual output (88,000). See the correct answer for a complete explanation.
