This is the $1,500 unfavorable variance added to the budgeted $150,000 and the sum divided by $15 per hour. The variance is based on the amount of direct labor allowed for the actual output, not on the amount of direct labor allowed for the budgeted output.
This answer results from using the efficiency variance formula with a negative variance amount to calculate the actual quantity of direct labor hours used. The variance is unfavorable, and for a cost, an unfavorable variance is a positive amount; so the variance amount used with the formula should be positive.
The formula for the quantity or efficiency variance is (AQ – SQ) × SP. The standard amount of direct labor per unit is 2 hours (10,000 hours planned divided by planned production of 5,000 units). The company actually produced 6,000 units. Therefore, the standard quantity of direct labor for the actual production was 6,000 × 2, or 12,000 hours. The standard price was $15 per hour. We know what the variance was, but we do not know what the actual quantity of direct labor used was. We can use the variance formula and solve for AQ. (AQ – SQ) × SP = Quantity/Direct Labor Efficiency variance (AQ – 12,000) × 15 = 1,500 Solving for AQ: 15AQ – 180,000 = 1,500 15AQ = 181,500 AQ = 12,100
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