Question

When auto manufacturer BMW purchased the Rolls-Royce brand name, BMW had to hire and train a new staff of assembly workers. The new workers were paid $25 per hour, worked a total of 7,500 hours, and produced 2,000 cars. BMW budgeted for a standard labor rate of $27 per hour and 1.25 direct labor hours per car. What is the direct labor efficiency variance for the Rolls-Royce division?A) $125,000 unfavorableB) $125,000 favorableC) $135,000 favorableD) $135,000 unfavorable

Answer 1

Answer:

The correct answer is D: Direct labor variance= $135000 unfavorable.

Explanation:

Giving the following information:

The new workers were paid $25 per hour, worked a total of 7,500 hours, and produced 2,000 cars.

BMW budgeted for a standard labor rate of $27 per hour and 1.25 direct labor hours per car.

Direct labor variance= (SQ*AQ)*SP

SQ= standard quantity

AQ= actual quantity

SP= standard price

SQ= To produce 2000 cars, it will take 1.25*2000=2500 hours

AQ= 7500 hours

SP= $27

Direct labor variance= (2500-7500)*27= $135000 unfavorable.

It took a considerable amount of hours more than predicted.