Question

Required information [The following information applies to the questions displayed below.) A manufactured product has the following information for June. Direct materials Direct labor Overhead Units manufactured Standard (6 lbs. @ $8 per lb.) (2 hrs. @ $16 per hr.) (2 hrs. $12 per hr.) Actual 49,700 lbs. @ $8.10 per lb. 16,000 hrs. @ $16.60 per hr. $202,300 8,200 Compute the direct labor rate variance and the direct labor efficiency variance. Indicate whether each variance is favorable or unfavorable. AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate Actual Cost Standard Cost S 0S $ op

Answer 1

Direct labor cost variance including its rate and efficiency variance Actual Cost AH X 16000 AH Flexible cost | X $ SR AR 16.60 SH Standard Cost X 16400 $ SR 16.00 $ 16000 16.00 $ 265,600 $ 256,000 $ 262,400 9,600 6,400 Direct Labor rate Variance Direct Labor efficiency Variance Total Direct labor cost variance $ $ $ 9,600 6,400 3,200 Unfavorable Favorable Unfavorable Standard hours = number of units X hours per unit Here number of units are 8200 units standard hours per unit is 2 hrs so total standard hours is 8200 x 2 =16400 hr Rate variance = actual cost - standard rate at actual hours Efficiency variance = standard rate at actual hours - Standard rate at standard hours Rate variance is favorable when actual cost incurred is less than standard cost at actual hours, and unfavorable when actual cost incurred is more than standard cost at actual hours. Efficiency variance is favorable when actual hours used are less than budgeted hours, and unfavorable when actual hours used are more than budgeted hours.