ExpertMedium2 marksShort Answer
ACCA · Question 26 · E. Standard costing
A software development firm uses standard costing. The standard labor time to code a specific module is 5 hours, at a standard rate of $40 per hour.
In the latest sprint, the team completed 100 modules and actually worked 480 hours.
Calculate the labor efficiency variance in dollars.
(Enter the absolute numeric value only, without commas, currency symbols, or F/A designations. E.g., if the answer is $500 Adverse, enter 500)
A software development firm uses standard costing. The standard labor time to code a specific module is 5 hours, at a standard rate of $40 per hour.
In the latest sprint, the team completed 100 modules and actually worked 480 hours.
Calculate the labor efficiency variance in dollars.
(Enter the absolute numeric value only, without commas, currency symbols, or F/A designations. E.g., if the answer is $500 Adverse, enter 500)
How to approach this question
1. Calculate standard hours allowed for actual production (100 modules * 5 hrs). 2. Compare standard hours to actual hours worked. 3. Multiply the difference by the standard labor rate.
Full Answer
1. Standard hours allowed for 100 modules = 100 * 5 hours = 500 hours.
2. Actual hours worked = 480 hours.
3. Difference in hours = 500 - 480 = 20 hours (Favorable, because they worked faster than standard).
4. Labor efficiency variance = 20 hours * $40/hour = $800.
Common mistakes
Using the actual rate (if given) instead of the standard rate to value the variance, or calculating the rate variance instead.
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