Question

Problem 8-25B Determining labor price and usage variances

As noted in Problem 8-24B, Watonga Swimsuit makes swimsuits. In Year 2, Watonga produced its most popular swimsuit, the Sarong, for a standard labor price of $33.60 per hour. The standard amount of labor was 1.0 hour per swimsuit. The company had planned to produce 100,000 Sarong swimsuits. At the end of Year 2, the company’s cost accountant reported that Watonga had used 107,000 hours of labor to make 102,000 swimsuits. The total labor cost was $3,723,600.

Required

1. Should the labor variances be based on the planned volume of 100,000 swimsuits or on the actual volume of 102,000 swimsuits?

2. Prepare a table that shows the standard labor price, the actual labor price, the standard labor hours, and the actual labor hours.

3. Compute the labor price variance and indicate whether it is favorable (F) or unfavorable (U).

4. Compute the labor usage variance and indicate whether it is favorable (F) or unfavorable (U).

Answer 1

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Solution:

Labor variances should be based on the actual of 102,000 swimsuits.

	Direct Labor
Standard Hours Per Unit	1.0
Standard Hours for 102000 Units	102000
Rate	33.6
Standard Cost	3427200
Actual Hours on 102000 Units	107000
Actual Cost	3723600
Actual Rate	34.8

Labor Effeciency Variances
(Actual Hours-Standard Hours)*Standard Rate
(107000-102000)*33.6	168000	Unfavorable
Labor Rate Variances
(Actual Rate -Standard Rate)*Actual Hours worked
(34.8-33.6)*107000	128400	Unfavorable