Puffy Parkas, Inc. manufactures designer parkas. The company uses standard costi

Question

Puffy Parkas, Inc. manufactures designer parkas. The company uses standard costing and has developed the following information about standards for its product.
Materials: 3 yards per unit; $15 per yard
Labor: 0.4 DL hour per unit; $9 per hour

During October, the company experienced an unanticipated spike in demand and increased production. Although planned production was for 1,200 units, the company actually produced 1,500 units. In anticipation of the original production volume, 3,600 yards were purchased, at a total cost of $55,000. During the month, 4,400 yards of material were used, and 610 direct labor hours were worked. Direct labor cost for the month totaled $5,551.

Compute the direct labor rate variance and direct labor efficiency variance and specify if each is favorable or unfavorable.

Explanation / Answer

Direct labor rate variance = 610 * ( 9(standard) - 9.1(actual, 5,551/610 = 9.1) = 61(unfavorable)

Direct labor efficiency variance = 9*(600(standard, 1,500*0.4 = 600) - 610(actual) = 90(unfavorable)

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