Question

The standards for a product specify 2.5 direct labor-hours per unit at $13.20 per direct labor-hour. Last month 3,160 units of the product were made using 8,100 direct labor-hours at a total direct labor wage cost of $104,085. a. What was the labor rate variance for the month? b.What was the labor efficiency variance for the month?

Answer 1

Solution:

As per the information given in the question we have

Standard Hours per unit = 2.5 direct labor Hours

Standard Rate per unit = $ 13.20 per unit

No. of actual units produced = 3,160

Actual direct labor hours used = 8,100 direct labor hours

Actual direct labor wage cost = $ 104,085

Thus the

Actual Hours per unit = Total direct labor hours used / No. of actual units produced

= 8,100 / 3,160

= 2.5633 direct labor Hours

Actual Rate per unit = Total direct labor wage cost / Total direct labor hours used

= $ 104,085 / 8,100

= $ 12.85

Calculation of Labor rate variance for the month:

The formula for calculating the labor rate variance is

= ( Actual Rate * Actual Hours * No. of units produced ) – ( Standard Rate * Actual Hours * No. of units produced)

Applying the available information in the formula we have

= ( $ 12.85 * 2.5633 * 3,160 ) – ( $ 13.20 * 2.5633 * 3,160 )

= $ 104,085.36 - $ 106,920.37

= - $ 2,835.01

Thus the labor rate variance = - $ 2,835.01 Unfavorable

= - $ 2,835 Unfavorable ( when rounded off to the nearest whole number )

Calculation of Labor efficiency variance for the month:

The formula for calculating the labor efficiency variance is

= ( Standard Rate * Actual Hours * No. of units produced ) – ( Standard Rate * Standard Hours * No. of units produced )

Applying the available information in the formula we have

= ( $ 13.20 * 2.5633 * 3,160 ) – ( $ 13.20 * 2.5* 3,160 )

= $ 106,920.37 - $ 104,280.00

= $ 2640.37

Thus the labor efficiency variance = - $ 2,640.37 Favorable

= $ 2,640 Favorable ( when rounded off to the nearest whole number )