Question

Direct Labor Variances

The following data relate to labor cost for production of 20,000 cellular telephones:

Actual:	8,450 hrs. at $22.50
Standard:	8,400 hrs. at $23.00

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	$
Time variance	$
Total direct labor cost variance	$

b. The employees may have been less-experienced or poorly trained, thereby resulting in a   labor rate than planned. The lower level of experience or training may have resulted in   efficient performance. Thus, the actual time required was  

Answer 1

Ans. A 1	Labor rate variance = (Standard rate - Actual rate) * Actual hours
	($23 - $22.50) * 8,450
	$0.50 * 8,450
	$4,225	or   $4,225   favorable
	Labor time variance = (Standard hours - Actual hours) * Standard rate
	(8,400 - 8,450) * $23
	-50 * $23
	-$1,150	or $1,150 unfavorable
	Total direct labor cost variance = Labor rate variance + Labor time variance
	$4,225 + (-$1,150)
	$3,075	or $3,075 favorable
Ans. B	The employees may have been less-experienced or poorly trained, thereby resulting in a
	higher labor rate than planned. The lower level of experience or training may have resulted
	in more  efficient performance. Thus, the actual time required was less than standard.