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15 December, 22:25

The manager provided the following information. Direct manufacturing labor hours: 2,400 hours Actual units produced: 12,000 units Budgeted direct manufacturing labor hours: 0.22 hour/unit Budgeted direct manufacturing labor rate: $24 per hour Actual direct manufacturing labor rate: $25 per hour Compute the direct manufacturing labor efficiency variance.

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  1. 15 December, 23:49
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    Labor efficiency variance = $5,760 (Favorable)

    Explanation:

    We know,

    Labor efficiency variance = (Standard hour - Accrual hour) * Standard rate

    Given,

    Accrual hour = 2,400

    Standard hour = Budgeted direct manufacturing labor hours * Actual units produced

    or, Standard hour = 0.22 * 12,000

    Standard hour = 2,640 hours.

    Standard rate = $24.

    Putting the values into the formula, we can get

    Labor efficiency variance = (2,640 - 2,400) hours * $24

    Labor efficiency variance = 240 * $24

    Labor efficiency variance = $5,760 (Favorable)

    As standard hours is higher then actual hours, it is a favorable situation.
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