Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:

| Standard Quantity | Standard Cost per Bag |
|-------------------|------------------------|
| Direct Materials | 20 kilograms | $8.00 |
| Direct Labour | 0.1 hours | $1.10 |
| Variable Manufacturing Overhead | 0.1 hours | $0.40 |

The company had no beginning inventories of any kind on January 1. Variable manufacturing overhead is applied to production on the basis of direct labour hours.

The results of the company's operations during January are as follows:

- Production of Fastgro: 4,000 bags
- Direct Materials Purchased: 85,000 kilograms at a cost of $32,300
- Direct Labour Used: 390 hours at a cost of $4,875
- Variable Manufacturing Overhead Incurred: $1,475
- Inventory of Direct Materials on January 31: 13,000 kilograms

What was the labour efficiency variance for January? Do not round intermediate calculations.

The labor efficiency variance for January is -$11. This negative variance means that they spent less time on production than expected according to the standard rate. That is, the company was more efficient in terms of labor in January than the standards set by the company would indicate.

Explanation:

To solve this question, we need to calculate the labor efficiency variance. This is basically a measure of how much the actual labor hours differed from the standard labor hours when 4000 bags were produced.

The formula for the labor efficiency variance is:

Labor Efficiency Variance = (Actual hours – Standard hours) x Standard rate

Let's go through these values one by one:

1. Standard hours per bag of Fastgro: 0.1 hours. This is the amount of time it should ideally take to produce one bag.
2. Number of bags produced in January: 4000 bags.
3. Standard labor rate: $1.1. This is the cost per hour of labor according to the standards set by the company.
4. Actual labor hours used in January: 390 hours.

Substitute the values in the formula:

first calculate the standard hours for the bags produced:

Standard hours = standard hours per bag x number of bags produced = 0.1 x 4000 = 400 hours

Now, let's plug these values into the labor efficiency variance formula:

Labor Efficiency Variance = (Actual hours – Standard hours) x Standard rate
= (390 - 400) x 1.1
= -10 x 1.1
= -$11.0

So, the labor efficiency variance for January is -$11. This negative variance means that they spent less time on production than expected according to the standard rate. That is, the company was more efficient in terms of labor in January than the standards set by the company would indicate.

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