Question 1

A company is performing a variance analysis of its direct labor costs.
Standard Rate: $20/hour
Standard Hours: 5,000 hours
Actual Rate: $22/hour
Actual Hours: 4,800 hours

What are the Labor Rate Variance and Labor Efficiency Variance?

Accepted Answer

1. Rate Variance = (Actual Price - Std Price) * Actual Quantity.
2. Efficiency Variance = (Actual Quantity - Std Quantity) * Std Price.
3. Positive result usually means Unfavorable (cost > std), Negative means Favorable.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Multiplying Rate difference by Standard Hours; Multiplying Efficiency difference by Actual Rate.

A company is performing a variance analysis of its direct labor costs.<br/>Standard Rate: $20/hour<br/>Standard Hours: 5,000 hours<br/>Actual Rate: $22/hour<br/>Actual Hours: 4,800 hours<br/><br/>What are the Labor Rate Variance and Labor Efficiency Variance?

How to approach this question

Full Answer

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