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    Question

    Which of the following situations would most likely

    result in a favourable Direct Labour Efficiency Variance but an adverse Direct Labour Rate Variance at the same time?
    A Workers are paid lower wages and take more time to complete the job Correct Answer Incorrect Answer
    B Skilled workers are hired at higher wages and complete the job faster Correct Answer Incorrect Answer
    C Machine breakdown causes idle labour time Correct Answer Incorrect Answer
    D Standard time per unit is increased during the year Correct Answer Incorrect Answer
    E Workers are paid incentive bonus for overtime time Correct Answer Incorrect Answer

    Solution

    A Direct Labour Efficiency Variance measures the difference between the actual hours worked and the standard hours allowed for the actual output. A favourable efficiency variance occurs when the actual hours are less than the standard hours (i.e., workers are more productive). Hiring skilled workers typically leads to higher productivity, meaning they complete tasks faster than expected.    A Direct Labour Rate Variance measures the difference between the actual hourly rate paid and the standard rate. An adverse (unfavourable) rate variance occurs when the actual rate paid is higher than the standard rate. Skilled workers generally command higher wages than the standard unskilled or semi-skilled rates, leading to an adverse rate variance. 

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