Question

The same problem is used for questions 2-5 (2 Raw materials price variance, 3 Raw materials quantity variance, 4 Direct labor rate variance and 5 Direct labor efficiency variance). It is repeated for each question. Chicken Nuggets, LLC, provides chicken nuggets to fast food restaurants. The standard cost card for chicken nuggets indicates each nugget takes two ounces of chicken meat at $0.03 per ounce, 30 seconds of direct labor at $12.00 per hour, and 30 seconds of overhead at $6.00 per hour, for a total standard cost of $0.21 per nugget. Current production cost for 100,000 nuggets show material cost of $5,250 for 210,000 ounces of chicken at $0.025 per ounce; $10,560 for 800 hours of direct labor at $13.20 per hour; and $4,800 of overhead applied for 800 hours at $6.00 per hour. Legend: U = Unfavorable F = Favorable The direct labor efficiency variance is: $1,000 U $9600 $560U $440 F $400 F

Please provide the explanation. Thank you!

Answer 1

Direct labor efficiency variance = standard rate x (standard hours - actual hours)

= $12 x (833.33 - 800)

= $400 F

Where,

Standard hours = actual output x standard hours per unit of output

= 100000 x (30/3600) = 833.33 hours

Here, the variance is favorable because the actual hours taken are less than standard hours.