CAF-5 · Chapter 17 · Question 1 of 20
(Standard Costing & Learning Curve) A company is introducing a new product and standard costs must be set. The first unit is expected to take 100 labour hours. The workforce is expected to follow an 80% learning curve. The standard labour rate is Rs. 50 per hour. During the first month, the company produces exactly 4 units, but the total actual labour hours worked were 270 hours. What is the Labour Efficiency Variance for the month?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rs. 700 Adverse
Explanation
Calculate the standard time for 4 units using the learning curve: Y=ax^b. b for 80% = log(0.8)/log(2)=-0.3219. Y=100*4^-0.3219 = 100*0.64 = 64 hours (Cumulative average time per unit). Total standard hours allowed for 4 units = 64*4 = 256 hours. Actual hours taken = 270 hours. Variance = (Standard Hours - Actual Hours) * Standard Rate = (256 - 270) * Rs. 50 = -Rs. 700 (Adverse, as actual time exceeded standard).
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