Question

CenterWare is a manufacturer of large flower pots for urban settings. The company has these​ standards:

Direct materials (resin) - 8 pounds per pot at a cost of $5.00 per pound

Direct labor - 3.0 hours at a cost of $14.00 per hour

Standard variable manufacturing overhead rate - $5.00 per direct labor hour

Budgeted fixed manufacturing overhead -$17,600

Standard fixed MOH rate - $6.00 per direct labor hour (DLH)

CenterWare allocated fixed manufacturing overhead to production based on standard direct labor hours. Last​ month, the company reported the following actual results for the production of 1,200

flower​ pots:

Direct materials - Purchased 10,680 pounds at a cost of $5.30 per pound; Used 10,080 pounds to produce 1,200 pots.

Direct labor - Worked 3.4 hours per flower pot (4,080 total DLH) at a cost of $13.00 per hour

Actual variable manufacturing overhead - $5.40 per direct labor hour for total actual variable manufacturing overhead of $22,032

Actual fixed manufacturing overhead - $17,300

Standard fixed manufacturing overhead allocated based on actual production - $21,600

Requirement 1. Compute the direct labor rate variance and the direct labor efficiency variance. ​(Enter the variances as positive numbers. Enter the currency amounts in the formulas to the nearest​ cent, then round the final variance amounts to the nearest whole dollar. Label the variance as favorable​ (F) or unfavorable​ (U). Abbreviations​ used: DL​ = Direct​ labor)

Begin with the direct labor rate variance. First determine the formula for the rate​ variance, then compute the rate variance for direct labor.

Answer 1

Solution:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
4080	$13.00	$53,040.00			4080	$14.00	$57,120.00			3600	$14.00	$50,400.00
			$4,080.00	F				$6,720.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance