CIMA BA2 · Chapter 7 · Question 5 of 14
Employees were paid for 5,000 hours, but because of a machine breakdown only 4,700 hours were worked. The standard rate is $15 per hour. Output was 1,600 units with a standard time of 2.8 hours per unit. What is the labour EFFICIENCY variance?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $3,300 adverse
Explanation
Standard hours for actual output = 1,600 x 2.8 = 4,480 hours. The efficiency variance compares hours actually WORKED with standard hours: (4,700 - 4,480) x $15 = $3,300 adverse. The 300 idle hours are reported separately as an idle time variance of 300 x $15 = $4,500 adverse; using hours paid would double-count them.
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