Question

Direct Labor Variances The following data relate to labor cost for production of 5,700 cellular telephones: Actual: Standard: 3,870 hrs. at $15.9 3,810 hrs. at $16.1 a. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Rate variance Favorable 4 Time variance Unfavorable 4 Total direct labor cost variance Unfavorable 4 b. The employees may have been less-experienced or poorly trained, thereby resulting in a lower labor rate than planned. The lower level of experience or training may have resulted in less efficient performance. Thus, the actual time required was more than standard.

Answer 1

Standard Costing is a costing method in which first the cost are allocated based on the predetermined rates and then these are compared with the actual cost incurred determine the reasons for variance both favourable and unfavourable variance. Labor Cost Variance consists of two part, first variance based on efficiency of labour called Labor Efficiency Variance and secondly based of rate of labor called Labour Rate Variance. Labor Rate Variance: The difference between the Standard and actual labor rate per hour applied the total hours worked. If negative then unfavourable and positive then favourable. Labor Efficiency Variance: The difference between the standard hours which should have been worked and the hours actually worked, valued at the standard labor rate. If negative then unfavourable and positive then favourable. Amount Remarks Particulars (a) Direct Labor Rate Variance ($16.10-$15.90] x 3870 [(Standard Rate - Actual Rate)xActual Hour] $774.00 Favourable ($966.00) Unfavourable Time Variance (3810-3870] x$16.10 [(Standard hour for Actual Production-Actual Hours) x Standard Rate] Total Direct Labor Cost Variance [(3810 x $16.10) - (3870 x $15.90)] [(Standard Hour x Standard Price) - (Actual Hour x Actual Rate) ($192.00) Unfavourable (b) The employees may have been less-experienced or poorly trained, thereby resulting in a lower lobor rate than planned. The lower level of experience or training may have resulted in less efficient performance. Thus, the actual time required was more than standard