SWC, Inc. uses standard costs to value its inventories. The standard cost of dir
ID: 2358719 • Letter: S
Question
SWC, Inc. uses standard costs to value its inventories. The standard cost of direct labor is $84 (6 hours @ $14 per hour). During the current month 92,000 hours were worked at an actual cost of $13.80 per hour. 15,000 finished units were produced. Calculate the direct labor variances. a. Labor rate variance 1. What was the standard hourly rate (SR)? 2. What was the actual hourly rate (AR)? 3. What were the actual hours worked (AH)? 4. Using the equation (SR - AR)AH calculate the labor rate variance? b. Labor efficiency Variance 1. What are the standard hours per unit? 2. How many units were produced? 3. How many hours should have been used (SH)? 4. What were the actual hours worked (AH)? 5. What is the standard hourly rate (SR)? 6. Using the equation (SH - AH)SR calculate material quantity variance? DIAGRAMMATIC APPROACH FOR LABOR VARIANCES Labor Efficiency Variance Labor Rate Variance Total Variance $9,600 (U) c. What might be some explanations for the above variances?Explanation / Answer
a. Labor rate variance 1. What was the standard hourly rate (SR)? SR = $14 per hour 2. What was the actual hourly rate (AR)? AR = $13.8 per hour 3. What were the actual hours worked (AH)? AH = 92000 hours 4. Using the equation (SR - AR)AH calculate the labor rate variance? Rate variance = (14 - 13.8) x 92000 = $18400F b. Labor efficiency Variance 1. What are the standard hours per unit? SH = 6 hours 2. How many units were produced? 15000 units 3. How many hours should have been used (SH)? SH = 15000 x 6 = 90000 hours 4. What were the actual hours worked (AH)? AH = 92000 hours 5. What is the standard hourly rate (SR)? SR = $14 6. Using the equation (SH - AH)SR calculate LABOR EFFICIENCY VARIANCE? (15000 x 6 - 92000) x 14 = $28000U c. What might be some explanations for the above variances? An adverse labor efficiency variance is usually accompanied by a favorable rate variance. This is mainly because cheaper less skilled labor is used and this will result in a lower efficiency in overall compared to if skilled labor is used. Hope this helps!
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