Question

Polaco Corporation makes a product that has the following direct labor standards: Standard direct labor-hours 0.4 hours per unit Standard direct labor rate $ 24.00 per hour In May the company produced 8,500 units using 3,220 direct labor-hours. The actual direct labor rate was $22.10 per hour. The labor efficiency variance for May is:

Answer 1

The labor efficiency variance for May for Polaco Corporation is $4,320 Favorable.

What is the labor efficiency variance?

The labor efficiency variance shows the difference between the actual direct labor hours worked and budgeted direct labor hours,

The labor efficiency variance is computed as the Standard hours allowed for production (SH) – actual hours taken (AH) × standard rate.

Data and Calculations:

Standard direct labor-hours per unit = 0.4 hours

Standard direct labor rate = $24 per hour

Production in May = 8,500 units

Actual hours used = 3,220 hours

Standard hours allowed = 3,400 hours (8,500 x 0.4)

Labor efficiency variance = $4,320 (3,400 - 3,220 x $24)

Thus, the labor efficiency variance for May for Polaco Corporation is $4,320 Favorable.

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