Question

Matthews & Bros. is a local landscape construction company. In analyzing financial performance, the cost accountant compares actual results with a flexible budget. The standard direct labor rates used in the flexible budget are established each year at the time the annual plan is formulated and held constant for the entire year.

The standard direct labor rates in effect for the current fiscal year and the standard hours allowed for the actual output of work for July are shown in the following schedule.

Worker Classification		Standard Direct Labor Rate per Hour				Standard Direct Labor-Hours Allowed for Output
I		$	40			1,500
II			35			2,000
III			25			2,500

The wage rates for each labor class increased under the terms of a new contract. The standard wage rates were not revised to reflect the new contract.

The actual direct labor-hours worked and the actual direct labor rates per hour experienced for the month of July were as follows.

Worker Classification		Actual Direct Labor Rate per Hour				Actual Direct Labor-Hours
I		$	44			1,660
II			38			2,600
III			26			1,800

Required:

Calculate the dollar amount of the total direct labor variance for July for Matthews & Bros. and break down the total variance into the following components:

a. Direct labor price and efficiency variances.

b. Direct labor mix and yield variances.

Answer 1

Direct Labor Price Variance
Formula : Actual Hours Worked * ( Standard Price per hour - actual price per hour)
Worker Classification	Actual Hours Worked	Standard Price	Actual Price	Variance
a	b	c	d	e=b(c-d)
I	1660	40	44	6640	Unfavorable
II	2600	35	38	7800	Unfavorable
III	1800	25	26	1800	Unfavorable
Net				16240	Unfavorable
Direct Labor Efficiency Variance
Formula :Standard Rate Per Hour * (Standard Hours - Actual Hours)
Worker Classification	Standard Price	Standard Hours	Actual Hours Worked	Variance
a	b	c	d	e=b*(c-d)
I	40	1500	1660	6400	Unfavorable
II	35	2000	2600	21000	Unfavorable
III	25	2500	1800	17500	Favorable
Net		6000	6060	9900	Unfavorable
Direct Labour Mix Variance
= Standard Rate * (Standard Hours - Actual Hours In Standard Mix)
Worker Classification	Standard Price	Standard Hours	Actual Hours In Std mix	Variance
a	b	c	d	e=b*(c-d)
I	40	1500	1515	600	Unfavorable
II	35	2000	2020	700	Unfavorable
III	25	2500	2525	625	Unfavorable
Net		6000	6060	1925	Unfavorable
Direct Labor Yeild Variance
= Standard Rate * (Actual Hours In Standard Mix - Actual Hours)
Worker Classification	Standard Price	Actual Hours In Std mix	Actual Hours Worked	Variance
a	b	c	d	e=b*(c-d)
I	40	1515	1660	5800	Unfavorable
II	35	2020	2600	20300	Unfavorable
III	25	2525	1800	18125	Favorable
Net		6060	6060	7975	Unfavorable