Whenever I see different types of measurement units in variance problems like this one below, I am totally confused as to the correct unit to pick out. Pound, hours, widget? What do they mean by cost “driver”? Vette or Charger DRIVER with a passenger, I know where the driver OR passenger sits, just saying.
A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct labor usage variance?
A. $25,000 favorable
B. $25,000 unfavorable
Correct C. $30,000 favorable
D. $30,000 unfavorable
You are correct, the answer is C.
The labor efficiency (usage) variance is the difference between standard cost of actual hours and the standard cost of the budgeted labor hours.
•Standard cost (at $15 per hour) of the actual hours of 3,000 hours was $45,000.
•Standard cost (at $15 per hour) of the standard hours (0.5 hours × 10,000 widgets) was $15 × 5,000 hours, or $75,000.
Since the actual cost was less than the budgeted cost ($45,000 – $75,000), the labor efficiency (usage) variance was $30,000 favorable.
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