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    lily_baby25 Posts: 4, Reputation: 1
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    Mar 4, 2012, 08:48 AM
    Labor efficiency variance
    The problem asks for total rate and efficiency variance. I figured the rate variance to be $585U and cannot seem to figure out efficiency variance.
    Standard
    Direct Material 20 lbs @ $8 per bag
    Direct Labor 0.1 hrs @ $1.10 per bag
    Variable Overhead 0.1 hrs @ $0.40 per bag
    No beginning inventories and variable overhead is applied to production on the basis of standard direct labor hours. During the month the company recorded the following activity...
    Production: 4000 bags
    Direct materials purchased: 85000 lbs at a cost of $32300
    Direct labor worked : 390 hrs at a cost of $4875
    Variable overhead incurred: $1475
    Inventory of direct materials at end of month is 3000 lbs

    For rate variance I used AH(AR-SR)
    390(12.50-11) and got $585U

    For efficiency variance I used SR(AH-SH)
    11(390-400) and got -$110

    Is this right or what am I doing wrong. Thanks

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