When standard direct labor hours differ from actual direct labor hours used, the company experienced a(n):

When standard direct labor hours differ from actual direct labor hours used, the company experienced a(n):

• A. efficiency variance
• B. price variance
• C. volume variance
• D. spending variance

Answer: (A)

Direct labor efficiency variance is triggered when the actual hours worked differ from the standard hours allowed for the actual level of output. It reflects how efficiently labor hours are used. The calculation uses the standard rate per hour times the difference between the standard hours for the actual output and the actual hours worked: (Standard hours for actual output − Actual hours) × Standard rate. If you used more hours than planned, the variance is unfavorable; if you used fewer hours, it’s favorable. The other variances come from different aspects: a price (rate) variance would occur if the hourly wage rate differed from the standard rate, regardless of hours worked; a volume variance is tied to the level of production activity and is typically associated with overhead and capacity effects; a spending variance relates to overall spending versus budget. So when standard hours differ from actual hours, the appropriate variance is the efficiency variance.

Direct labor efficiency variance is triggered when the actual hours worked differ from the standard hours allowed for the actual level of output. It reflects how efficiently labor hours are used.

The calculation uses the standard rate per hour times the difference between the standard hours for the actual output and the actual hours worked: (Standard hours for actual output − Actual hours) × Standard rate. If you used more hours than planned, the variance is unfavorable; if you used fewer hours, it’s favorable.

The other variances come from different aspects: a price (rate) variance would occur if the hourly wage rate differed from the standard rate, regardless of hours worked; a volume variance is tied to the level of production activity and is typically associated with overhead and capacity effects; a spending variance relates to overall spending versus budget. So when standard hours differ from actual hours, the appropriate variance is the efficiency variance.