The standard labour time is 1.5 hours per unit, at $16 per hour. During a period 1,400 units were produced. Employees were paid for 2,300 hours, but 120 of these hours were idle time. What is the labour efficiency variance?

Correct answer: C) $1,280 adverse

Explanation

Standard hours for actual output = 1,400 x 1.5 = 2,100. Hours actually worked = 2,300 - 120 = 2,180. Efficiency variance = (2,100 - 2,180) x 16 = 80 x 16 = $1,280 adverse. Idle time is shown separately as an idle time variance (120 x 16 = $1,920 adverse). Using hours paid would wrongly give $3,200 adverse.