P11-57B Work backward through labor variances (Learning Objective 3) Folklore Mu
ID: 2392609 • Letter: P
Question
P11-57B Work backward through labor variances (Learning Objective 3) Folklore Music manufactures harmonicas. Folklore uses standard costs to judge performance. Recently, a clerk mistakenly threw away some of the records, and only partial data for July exist. Folklore knows that the total direct labor variance for the month was $350 F and that the standard labor rate was $11 per hour. A recent pay cut caused a favorable labor rate variance of $0.40 per hour. The standard direct labor hours for actual July outputs were 5,910 Requirements 1. Find the actual number of direct labor hours worked during July. First, find the actual direct labor rate per hour. Then, determine the actual number of direct labor hours worked by setting up the computation of the total direct labor variance as given. 2. Compute the direct labor rate and efficiency variances. Do these variances suggest that the manager may have made trade-offs? ExplainExplanation / Answer
1.Labor rate variance is favorable by $0.40 per hour. That means, actual labor rate was $0.40 lesser than standard labor rate per hour.
Therefore,
Actual labor rate = Standard labor rate - $0.40 = $11 - $0.40 = $10.60
Now,
Total direct labor variance = (Actual rate x Actual hours) - (Standard rate x Standard hours)
Therefore,it gives:
- $350 = ($10.60 x Actual hours) - ($11 x 5,910)
Or,
($11 x 5,910) - $350 = $10.60 x Actual hours
Or,
$64,660 = $1060 x Actual hours
Or,
Actual hours = $64,660/$10.60 = 6,100
2.Direct labor rate variance:
= (Actual rate - Standard rate) x Actual hours
= ($10.60 - $11) x 6,100
= $2,440 Favorable
3.Direct labor efficiency variance:
= (Actual hours - Standard hours) x Standard rate
= (6,100 - 5,910) x $11
= $2,090 Unfavorable.
Direct labor rate variance is favorable and direct labor efficiency variance is unfavorable. The manager may have trade-off between rate and quality to save money which eventually proved to be a good decision because total direct labor variance is favorable.
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