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Chhom Corporation makes a product whose direct labor standards are 0.8 hours per unit and $22 per hour. In November, the company produced 7,050 units using 5,140 direct labor-hours. The actual direct labor cost was $107,940.

What is the labor efficiency variance for November?

Answer :

Final answer:

Chhom Corporation's labor efficiency variance for November is $11,000 favorable. This is calculated by comparing the standard labor hours for the produced units and the actual labor hours used and multiplying the difference by the standard cost per labor hour.

Explanation:

The labor efficiency variance refers to the difference between the budgeted cost for planned output and the actual cost of actual output. This variance provides insights regarding whether a company is efficiently utilizing its labor force. Here, Chhom Corporation's standard direct labor hours per unit are 0.8. As such, for 7,050 units, the standard direct labor hours become 0.8*7,050 = 5,640 hours.

The actual direct labor hours used are 5,140. Therefore, the difference, 5,640-5,140 gives us the variance in direct labor hours which is 500 hours. Given that the cost per labor hour is $22, the labor efficiency variance would be this difference multiplied by the standard cost per labor hour, which is 500*$22 = $11,000 favorable. The 'favorable' term is used because the actual labor hours are less than the standard labor hours.

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