ou have started working as a cost accountant for a firm that has only been in bu
ID: 2603713 • Letter: O
Question
ou have started working as a cost accountant for a firm that has only been in business for one month. The firm is able to buy a new type of biodegradable plastic at a fixed price of $100 per roll. The plastic is then cut and sealed to make garbage bags. Fixed factory overhead is estimated to be $125,000 per month. During this past month, 8,000 cartons of garbage bags were produced, which represents 80% of the activity volume. You are given the following information:
Calculate the following:
Labour efficiency variance $_______________ (also favourable, unfavourable or neither)
Rolls of plastic used 40 Variable overhead incurred $61,000 Overhead efficiency variance $5,000 U Standard costs per carton of garbage bags: Labour hours 2 Wage rate $8 per hour Total overhead $20 Rolls of plastic 0.004 rollsExplanation / Answer
Calculation of labour efficiency variance:
(SH-AH)*SR or (SH*SR) - (AH*SR)
SH= Standard hours allowed for actual output
AH= Actual hours worked
SR= Standard rate.
Standard direct labour hours allowed for units produced are 8, 000 produced at 2 hours = 16,000hours
= [$20*16000HRS]-[($8*2)*16000 HRS]
= [$20*16000HRS]-[16*16000 HRS]
= $3, 20, 00 - $2, 56,000
= $64000 (unfavourable)
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