Labor efficiency variance is the difference between the standard direct labor hours allowed and actual direct labor hours used in production. To determine: The reason of undue emphasis on labor efficiency variance lead to excess work in process inventories Solution: Labor quantity and efficiency variances have two important assumptions. They assume that the production process is labor-paced, i.e., output will increase if the labor works faster. Labor is a variable cost. However, direct labor can be fixed. If labor is fixed, then an undue emphasis on labor efficiency variances creates pressure to build excess inventories. If labor is a fixed cost and standards are tight, then the only way to generate favorable labor efficiency variances is when labor produces at its capacity. However, as the products usually require further processing, hence, the products made available for processing at the next stage will be higher than what it can process. This will result in work in process inventory. Conclusion: Thus, undue emphasis on labor efficiency variance leads to excess work in process inventories.

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Subject:- General Account Aaker Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price Units in beginning inventory Units produced $ 119 0 6,550 Units sold 6,250 Units in ending inventory 300 Variable costs per unit: Direct materials $ 17 Direct labor $ 47 Variable manufacturing overhead $ 11 Variable selling and administrative $ 11 Fixed costs: Fixed manufacturing overhead $1,76,850 Fixed selling and administrative $25,500 What is the unit product cost for the month under variable costing? a. $86 per units b. $113 per units c. $102 per units d. $75 per units