Chapter 7 accounting for labor (f2 acca)

Chapter 7: Accounting for Labour

Exam

Prepared for Students August 12, 2025

1 Part 1: Questions

This section contains 35 multiple-choice questions on Chapter 7 content Each question may require selecting one correct answer, all that apply, or other formats Students should answer

on separate answer sheets

1 Which of the following types of workers would be classified as indirect labour?

A. Machine operators in a factory that makes desks by machine

B. Painters in a decorating company

C. Machine repairers in a factory that makes desks by machine

D. Assembly workers in a factory making calculators

2 A company budgeted on producing 20,000 units and taking 8,000 labour hours They actually took 11,000 hours to produce 25,000 units What was the labour efficiency ratio?

A. 90.9%

B. 137.5%

C. 72.7%

D. 110.0%

3 A company budgeted on producing 20,000 units and taking 8,000 labour hours They actually took 11,000 hours to produce 25,000 units What was the labour capacity ratio?

A. 110.0%

B. 90.9%

C. 72.7%

D. 137.5%

4 A company had 80 direct production workers at the beginning of last year and 60 direct production workers at the end of last year During the year a total of 45 employees had left the company What was the labour turnover rate for last year?

A. 75.0%

B. 21.4%

C. 35.7%

D. 64.3%

5 An employee is paid on a piecework basis as follows:

Units Rate per unit ($)

1 to 500 0.50

501 to 1,000 0.75

1,001 to 1,500 1.00

Only the additional units qualify for the higher rates, and rejected units do not qualify for

payment During one day an employee produced 1,200 units of which 32 were rejected

How much did the employee earn for the day?

A. $1,168

B. $793

C. $1,200

D. $825

6 Which of the following is a characteristic of direct labour?

A. It is not traceable to specific products

B. It is involved in maintenance and support

C. It is directly involved in production of goods

D. It includes administrative salaries

7 Labour turnover rate is calculated as:

A. Number of leavers / Number of hires×100Numberofleavers/Averagenumberofemployees×

100

B C. Average employees / Number of leavers×100Numberofhires/Numberofleavers ×

100

D.8 In time-based remuneration, employees are paid based on:

A. Number of units produced

B. Hours worked

C. Quality of output

D. Sales achieved

9 True or False: Overtime premium is usually treated as an indirect cost

A. True

B. False

10 A bonus scheme is designed to:

A. Reduce employee motivation

B. Increase production efficiency

C. Raise fixed costs

D. Decrease labour turnover

11 Idle time is:

A. Productive time paid to workers

B. Time when workers are not producing due to unavoidable reasons

C. Overtime hours

D. Vacation time

12 Labour rate variance is the difference between:

A. Actual hours and standard hours

B. Actual rate and standard rate, multiplied by actual hours

C. Actual output and budgeted output

D. Standard cost and actual cost for materials

13 Which remuneration method encourages higher output?

A. Time-based pay

B. Piecework pay

C. Salary

D. Commission only

14 True or False: High labour turnover is always negative for a company

A. True

B. False

15 The labour efficiency variance is favorable if:

A. Actual hours > standard hours

B. Actual hours < standard hours

C. Actual rate > standard rate

D. Actual rate < standard rate

16 In a piecework system with guaranteed minimum wage, the employee receives:

A. Only piece rate earnings

B. The higher of piece rate or minimum wage

C. Fixed salary only

D. Bonus on top of piece rate

17 Causes of labour turnover include: (Select all that apply)

A. Poor working conditions

B. Low pay

C. Retirement

D. Promotion

18 The standard labour cost is used in:

A. Variance analysis

B. Financial reporting only

C. Tax calculations

D. Marketing decisions

19 Overtime is paid at:

A. Basic rate

B. Premium rate above basic

C. Reduced rate

D. No rate

20 True or False: Indirect labour costs are allocated to products via overhead absorption

A. True

B. False

21 A differential piece rate system pays higher rates for:

A. Lower output

B. Higher output levels

C. Standard output

D. Rejected units

22 Labour mix variance arises when:

A. Different grades of labour are used than planned

B. Labour rates change

C. Output is higher

D. Materials are substituted

23 The cost of idle time is treated as:

A. Direct labour cost

B. Indirect labour cost

C. Variable overhead

D. Fixed overhead

24 Which of the following reduces labour turnover? (Select all that apply)

A. Better training

B. Competitive pay

C. Good working environment

D. Strict supervision

25 The labour activity ratio is:

A. Actual production / Budgeted production×100Actualhours/Budgetedhours × 100

B C. Standard hours / Actual hours ×100Budgetedhours/Actualhours × 100

D.26 In a bonus scheme like Halsey, the bonus is based on:

A. Time saved

B. Units produced

C. Sales revenue

D. Profit margin

27 Labour cost per unit decreases with:

A. Higher turnover

B. Learning curve effect

C. Increased idle time

D. Lower efficiency

28 True or False: Piecework pay can lead to quality issues

A. True

B. False

29 A company budgeted 5,000 labour hours at $10 per hour to produce 10,000 units Actual production was 12,000 units, taking 5,800 hours at $11 per hour What is the labour efficiency variance?

A. $2,000 Favorable

B. $2,000 Adverse

C. $4,000 Favorable

D. $4,000 Adverse

30 The formula for labour rate variance is:

A. (Standard rate - Actual rate)×Actualhours(Standardrate−Actualrate)×Standardhours

B C. (Standard hours - Actual hours)×Standardrate(Standardhours −Actualhours)× Actualrate

D.31 Group bonus schemes encourage:

A. Individual performance

B. Teamwork

C. Competition among workers

D. Higher turnover

32 The cost of training new employees due to turnover is:

A. Direct cost

B. Indirect cost

C. Variable cost

D. Sunk cost

33 In standard costing, labour variances include: (Select all that apply)

A. Rate variance

B. Efficiency variance

C. Mix variance

D. Yield variance

34 The Rowan bonus scheme shares time saved between:

A. Employer and employee proportionally

B. Equally

C. Only to employee

D. Only to employer

35 High labour efficiency ratio indicates:

A. More hours than expected

B. Fewer hours than expected for output

C. Higher costs

D. Lower output

36 True or False: Labour costs are always variable

A. True

B. False

37 The purpose of labour budgeting is to:

A. Control labour costs

B. Increase turnover

C. Reduce efficiency

D. Ignore variances

2 Part 2: Answers and Detailed Explanations

This section is for instructors Each answer includes an explanation based on fundamental

accounting for labour concepts

1 C Machine repairers in a factory that makes desks by machine Explanation:

Indirect labour supports production but is not traceable to products Machine repairers

maintain equipment, not directly producing desks Operators, painters, and assembly

workers are direct labour

2 A 90.9% Explanation: Efficiency ratio = (Standard hours for actual output / Actual

hours)×100.Standardhoursperunit = 8, 000/20, 000 = 0.4.F or25, 000units = 10, 000hours.Actual =

11, 000.Ratio = 10, 000/11, 000 × 100 = 90.9%.

3 D 137.5% Explanation: Capacity ratio = (Actual hours / Budgeted hours) ×100 = 11, 000/8, 000×

100 = 137.5%.

4 D 64.3% Explanation: Turnover rate = (Leavers / Average employees) ×100.Average = (80 +

60)/2 = 70.Rate = 45/70 × 100 ≈ 64.3%.

5 B $793 Explanation: Good units = 1,200 - 32 = 1,168 Earnings: 500 ×$0.50 = $250; 500 ×

$0.75 = $375; 168 × $1.00 = $168.T otal = $250 + $375 + $168 = $793.

6 C It is directly involved in production of goods Explanation: Direct labour is traceable

to products, unlike indirect labour which supports production

7 B Number of leavers / Average number of employees×100Explanation:T hisisthestandardformulaforlabourturnoverrate.

8 B Hours worked Explanation: Time-based pay compensates employees for hours worked, not

output or quality

9 A True Explanation: Overtime premium is typically treated as overhead, not direct labour.

10 B Increase production efficiency Explanation: Bonus schemes motivate workers to increase

productivity

11 B Time when workers are not producing due to unavoidable reasons Explanation:

Idle time (e.g., machine breakdowns) is non-productive and treated as indirect

12 B Actual rate and standard rate, multiplied by actual hours Explanation: Rate variance

= (Standard rate - Actual rate) ×Actualhours.

13 B Piecework pay Explanation: Piecework ties pay to output, incentivizing higher production.

14 B False Explanation: High turnover can bring fresh perspectives but is generally costly due to

training and disruption

15 B Actual hours < standard hours Explanation: Favorable efficiency variance occurs when

fewer hours are used than standard for the output

16 B The higher of piece rate or minimum wage Explanation: Guaranteed minimum ensures

at least the minimum wage if piece earnings are low

17 A, B, C Explanation: Turnover causes include poor conditions, low pay, and retirement

Pro-motion is not a cause of leaving

18 A Variance analysis Explanation: Standard labour costs are used to calculate variances for

cost control

19 B Premium rate above basic Explanation: Overtime is paid at a higher rate (e.g.,

time-and-a-half)

20 A True Explanation: Indirect labour is part of overhead, absorbed into product costs.

21 B Higher output levels Explanation: Differential piece rates reward higher productivity with

increased rates

22 A Different grades of labour are used than planned Explanation: Mix variance occurs

when the labour skill mix differs from the standard

23 B Indirect labour cost Explanation: Idle time is treated as overhead, not direct labour.

24 A, B, C Explanation: Training, competitive pay, and good conditions reduce turnover; strict

supervision may increase it

25 A Actual production / Budgeted production×100Explanation:Activityratiomeasuresoutputachievedagainstbudget.

26 A Time saved Explanation: Halsey bonus shares 50% of time saved at the standard rate.

27 B Learning curve effect Explanation: Learning reduces time per unit, lowering labour cost

per unit

28 A True Explanation: Piecework may lead to rushed work, compromising quality.

29 A $2,000 Favorable Explanation: Standard hours per unit = 5,000 / 10,000 = 0.5 Standard

hours for 12,000 units = 12,000 ×0.5 = 6, 000.Actualhours = 5, 800.Efficiencyvariance =

(6, 000 − 5, 800) × $10 = 200 × $10 = $2, 000F avorable.

30 A (Standard rate - Actual rate)×ActualhoursExplanation:T hisistheformulaforlabourratevariance.

31 B Teamwork Explanation: Group bonuses promote collective effort.

32 B Indirect cost Explanation: Training costs due to turnover are overhead, not direct.

33 A, B, C Explanation: Labour variances include rate, efficiency, and mix; yield is for materials.

34 A Employer and employee proportionally Explanation: Rowan bonus = (Time saved /

Time allowed) ×T imetaken × Rate.

35 B Fewer hours than expected for output Explanation: High efficiency ratio indicates

better-than-expected productivity

36 B False Explanation: Labour costs can be fixed (salaries) or variable (hourly wages).

37 A Control labour costs Explanation: Labour budgeting plans and monitors costs for

effi-ciency