Dexter Surgical Tools Has Set the Following Direct Labour Standard

question 42

Multiple Choice

Dexter Surgical Tools has set the following direct labour standard: 0.5 hours at $20 per hour, for each unit of Tool #11. The company plans to produce 1200 units of Tool #11 in July; however, the actual production was 1000 units and only 900 units were actually sold. The actual labour cost for July was $22 per hour.
Which of the following is a likely explanation for the July labour efficiency variance?

• A) The standard was set incorrectly.
• B) A machine breakdown has resulted in unanticipated inefficiencies.
• C) The production level was smaller than expected.
• D) Both incorrectly set standards and a machine breakdown are likely explanations.

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Definitions:

Saving

Income that is not expended on immediate consumption but rather reserved for investing or future purposes.

Disposable Income

Financial resources at the disposal of households for the aims of saving and spending after income tax engagements.

Saving

The portion of income not spent on consumption or taxes, typically put aside for future use or investment.

APC

The acronym for Average Propensity to Consume, which measures the fraction of income that households spend on goods and services rather than saving.