Perez’s Doll Company produces handmade dolls. The standard amount of time spent on each doll is 1.50 hours. The standard cost of labor is $7.73 per hour. The company planned to make 8,400 dolls during the year but actually used 13,100 hours of labor to make 9,900 dolls. The payroll amounted to $104,800.
Required
Should labor variances be based on the planned volume of 8,400 dolls or the actual volume of 9,900 dolls?
Prepare a table that shows the standard labor price, the actual labor price, the standard labor hours, and the actual labor hours.
Compute the labor price variance and indicate whether it is favorable (F) or unfavorable (U).
Compute the labor usage variance and indicate whether it is favorable (F) or unfavorable (U).
Solution 1:
Labor variances should be based on the actual volume of 9,900 dolls.
Solution 2:
Labor Variance Information Table | ||
Standard Labor Price | $7.73 | Per Hour |
Actual Labor Price ($104,800/13100) | $8.00 | Per Hour |
Standard labor Hours (9900*1.5) | 14850 | Hours |
Actual Labor Hours used | 13100 | Hours |
Solution 3:
Labor Price variance = (SP- AP) * AH = ($7.73 - $8) * 13100 = $3,537 Unfavorable
Solution 4:
Labor Usage variance = (SH - AH) * SR = (14850 - 13100) * $7.73 = $13,527.50 Favorable
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