The head of the research arid development department at a manufacturing organization believes that his team lacks expertise in some areas, and he…

The decision involves hiring more experienced, and thus more expensive, researchers. This will increase the actual labor rate paid compared to the standard rate, resulting in an adverse (unfavorable) labor rate variance. However, these more experienced researchers are expected to be more skilled and efficient, completing the work in less time than the standard hours allowed. This reduction in hours worked for a given output leads to a favorable labor efficiency variance.

Adverse labor efficiency variance: This is incorrect because more experienced researchers are expected to be more, not less, efficient, reducing the time needed to complete tasks. Favorable labor rate variance: This is incorrect because more experienced researchers command higher wages, leading to an actual rate that is higher than the standard, which is an adverse variance.

1. Horngren, C. T., Datar, S. M., & Rajan, M. V. (2015). Cost accounting: A managerial emphasis (15th ed.). Pearson Education. Chapter 7, pp. 236-238, explains that a labor rate variance captures the difference between actual and standard wage rates, while the labor efficiency variance measures the difference between actual and standard hours used.

2. Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning. Chapter 21, "Standard costing and variance analysis 1," details how hiring higher-skilled staff at a higher pay rate can lead to an adverse rate variance but a favorable efficiency variance.