Bonnie’s Doll Company produces handmade dolls. The standard amount of time spent on each doll is 2.0 hours. The standard...
Bonnie’s Doll Company produces handmade dolls. The standard amount of time spent on each doll is 2.0 hours. The standard cost of labor is $20 per hour. The company planned to make 8,000 dolls during the year but actually used 17,500 hours of labor to make 9,000 dolls. The payroll amounted to $344,750.
Required
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Should labor variances be based on the planned volume of 8,000 dolls or the actual volume of 9,000 dolls?
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Prepare a table that shows the standard labor price, the actual labor price, the standard labor hours, and the actual labor hours.
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Compute the labor price variance and indicate whether it is favorable (F) or unfavorable (U).
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Compute the labor usage variance and indicate whether it is favorable (F) or unfavorable (U).
Homework Answers
ANSWER
| Std Labor hours (9000*2) | 18000 | ||
| Std rate per hour | 20 | ||
| Actual labor hours | 17500 | ||
| Actual Rate per hour (344750/17500) | 19.7 | ||
| Labor price variance = Actual hours (Std price - Actual price) | |||
| 17500 (20-19.70) = 5250 Fav | |||
| Labor efficiency variance = Std rate (Std hours- Actual Hours) | |||
| 20 (18000-17500)= 10000 Fav | |||
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