1. During a recent lengthy strike at Morell Manufacturing Company, management re

Question

1. During a recent lengthy strike at Morell Manufacturing Company, management replaced striking assembly line workers with office workers. The assembly line workers had been paid $18 per hour while the office workers are only paid $10 per hour. What is the most likely effect on the labor variances in the first month of this strike? Labor Rate Variance Labor Efficiency Variance A) B) C) D) Unfavorable No effect Unfavorable Favorable No effect Unfavorable Favorable Unfavorable O Option D Option B O Option A O Option C

Explanation / Answer

Labor rate variance - Favourable

Labor efficiency variance - Unfavorable

Option A (Option D) is the answer.

Please don't get confused with the options Select your first option. That is the correct answer.

Labor Rate Variance will be Favourable for the management because Office workers are paid only $10 compared to $18 for Assembly line workers. By replacing Assembly workers, the labor rate per hour decreases. Hence Favourable

As it's assembly line work, office workers will be less efficient compared to Assembly line workers. And the Actual Hours taken may increase. So, Efficiency Variance will be Unfavorable

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