Question

Puvo, Inc., manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product:

	Standard Quantity			Standard Price or Rate			Standard Cost
Direct materials		5.8	pounds	$	0.60	per pound	$	3.48
Direct labor		0.5	hours	$	33.50	per hour	$	16.75
Variable manufacturing overhead		0.5	hours	$	8.50	per hour	$	4.25

During March, the following activity was recorded by the company:

• The company produced 2,400 units during the month.
• A total of 19,400 pounds of material were purchased at a cost of $13,580.
• There was no beginning inventory of materials on hand to start the month; at the end of the month, 3,620 pounds of material remained in the warehouse.
• During March, 1,090 direct labor-hours were worked at a rate of $30.50 per hour.
• Variable manufacturing overhead costs during March totaled $14,061.

The direct materials purchases variance is computed when the materials are purchased.

The labor efficiency variance for March is:

Multiple Choice

• $3,685 U

• $3,040 U

• $3,685 F

• $3,040 F

Answer 1

Labor efficiency variance

= (SH - AH) * SR

= (2400*0.50 - 1090) * 33.50

= (1200 - 1090) * 33.50

= 110 * 33.50

= 3685 F