Budgeting - Sample Assessment 2 AAT Website (Task 6b)

aldo1812

Hi there,

I'm just wondering if anyone can please clarify how to calculate the efficiency variance?

Details are as follows:

The operating statement for October showed that direct labour costs were £31,250
2,500 direct labour hours were worked and 5,000 items were made and sold
The standard cost allows 35 minutes of labour for each item at a standard labour hourly rate of £12

Many thanks in advance,
Al

N4T

I couldn't see this question on AAT website, my sample assessment 2 had a different question, so hoping my answer is correct.

Standard costs:
35/60 = 0.5833 hrs per item
£12 per hr

Labour Efficiency Variance. Actual hours @ Std rate vs. Standard hours @ std rate

Actual hours = 2,500 hrs
Standard hours = 5000 items should take (@ 0.5833333hrs per item) 2916,6665 hrs

Therefore,
Actual hrs @ std rate 2500 hrs x £12 = £30,000
Std hrs @ std rate 2916,6665 hrs x £12 = £35,000
Labour efficiency variance = £5000 FAVOURABLE

Does this match the answer you have? Sometimes rounding up too soon will give you a different answer.

aldo1812

yes! Thanks so much for you help!