Question

1. Compute the direct labor rate variance and the direct labor efficiency variance. 2. What is the total variance for direct labor? 3. Who is generally responsible for each variance? 4. Interpret the variances.

Answer 1

Answer 1

It is given that

Standard rate	$      12
Standard hours (2000*4)	8,000
Actual rate	$      11
Actual hours	9,000

Labor rate Variance = (Standard rate-Actual rate)*Actual hours

Labor rate Variance = ($12 - $11)*9,000

Labor rate Variance = $ 9,000 (F)

Labor efficiency Variance = (Standard hours (2000*4)-Actual hours)*Standard rate

Labor efficiency Variance = (8,000 - 9,000) * $ 12

Labor efficiency Variance = $ -12,000 or $12,000 (U)

Answer 2

Labor Cost Variance = Labor rate Variance+Labor efficiency Variance

Labor Cost Variance = $ 9,000 + $ -12,000

Labor Cost Variance = $ -3000 or 3,000(U)

Answer 3

Labor rate Variance = HR ( Human resource) manager. This is because it is his duty to hire labor and give them low wages to reduce costs.

Labor efficiency Variance = Production manager. This is because if more labour hours are used, it shows that production was inefficient.

Answer 4

In the above case, the Labor rate Variance is $ 9,000 (F). It shows that the HR manager has done his work efficiently and paid ow wages than standard.

Labor efficiency Variance is $12,000 (U). his shows that more labor hours are used and production was inefficient.

In case of any doubt, please comment.