Answer (B) is correct . The direct labor efficiency variance equals the difference between the standard and actual amounts of labor hours times the standard rate. The standard rate is $10 per hour. The actual amount of labor hours is 3,200 hours. The standard amount of labor hours is 3,000 (2 hours × 1,500 units). Thus, the direct labor efficiency variance is $2,000 [(3,000 – 3,200) × $10]. The variance is unfavorable because more labor hours were used than the standard.
Answer (A) is incorrect because The amount of $2,050 uses the actual labor price.
Answer (C) is incorrect because The difference between the direct labor efficiency variance and the product of the cost difference ($.25) and the standard hours allowed is $1,250.
Answer (D) is incorrect because The difference between the labor efficiency and rate variances is $1,200.
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