Question

Exercise 15-6 Blue Company's standard labor cost of producing one unit of Product DD is 3.7 hours at the rate of $12.6 per hour. During August, 43,500 hours of labor are incurred at a cost of $12.80 per hour to produce 11,600 units of Product DD. Compute the total labor variance. Total labor variance Compute the labor price and quantity variances. Labor price variance Labor quantity variances Compute the labor price and quantity variances, assuming the standard is 4.1 hours of direct labor at $12.90 per hour. Labor price variance $ Labor quantity variance

Answer 1

Solution:

A) Compute the total variance as follows:

Total labor variance = [(Actual hours * actual rate)-(standard hours * standard rate)]

=[(43,500 * 12.80)-(11,600 *3.7*12.60)]

=[556,800 -540,792]

=16,008 unfavorable

B) Compute the labor price and quantity variance as follows:

Labor price variance =[(Actual hours * Actual rate) - (Actual hours * standard rate)]

=[(43,500 * 12.80)-(43,500 *12.60)]

= 556,800 - 548,100

=8,700 unfavorable

Labor quantity variance = [(Actual hours *Standard rate) - (Standard hours * standard rate)]

=[(43,500 * 12.60 )-(11,600*3.7*12,60)]

=[548,100 -540,792]

=7,308 unfavorable

c) Compute the labor price and quantity variances as follows:

Labor price variance =[(Actual hours * actual rate)-(Actual hours * standard rate)]

=[(43,500 *12.80) - (43,500 * 12.90)]

=556,800 - 561,150

= 4,350 favorable

Labor quantity variance = [(actual hours * standard rate) - (standard hours * standard rate)]

=[(43,500 *12.90) - (11,600 *4.1 *12.90)]

=561,150 - 613,524

=52,374 favorable