3. In analyzing a company\'s direct labor, you are provided with: Actual direct

Question

3. In analyzing a company's direct labor, you are provided with:

     Actual direct labor hours worked: 950

Actual rate per hour: $18.25

Standard hours allowed for actual output: 900

Standard rate per hour: $18.50

The labor rate variance is _______. (Favorable or Unfavorable?)

Nowden Company has provided the following information: Standard variable cost per unit: Direct material Direct labor Variable mfg overhead 12.00 60 ounces at $0.20 per ounce 10.00 0.5 hours at $20.00 per hour 4.80 0.4 hours at $12 per hour $26.80 Variable manufacturing overhead is applied to products on the basis of direct-labor hours Actual units produced 4,000 Actual variable cost per unit: Direct material purchased Direct material used in production Direct labor Variable mfg overhead $ 75,000 250,000 ounces at $0.30 per ounce 240,000 ounces $ 31,775 1,550 hours@$20.50 per hour $ 19,995 Calculate the following amounts: Direct labor variances: Labor rate variance: Labor efficiency variance Spending variance Variable manufacturing variances Variable overhead rate variance Variable overhead efficiency variance: Spending variance: Round all intermediate calculations to two decimal places. You must format your answers as follows: for favorable variances: $x,xxx F for unfavorable variances: $x,xxx U

Explanation / Answer

1) Direct Labor Variances

Labor rate variance = (Std rate - Actual rate)*Actual hours

= ($20 - $20.50)*1,550 hrs = ($775) U

Labor efficiency variance = (Std hrs - Actual hrs)*Std rate

= [(4,000 units*0.50 hrs) - 1,550 hrs]*$20

= (2,000 hrs - 1,550 hrs)*$20 = $9,000 F

Labor spending variance = Standard labor cost - Actual labor cost

= (2,000 hrs*$20) - $31,775 = $8,225 F

Variable Manufacturing Variances

Actual VOH rate = $19,995/1,550 hrs = $12.90 per hour

Variable overhead rate variance = (Std VOH rate - Actual VOH rate)*Actual hrs

= ($12.00 - $12.90)*1,550 hrs = ($1,395) U

Variable overhead efficiency variance = (Std hrs - Actual hrs)*Std VOH rate

= (2,000 hrs - 1,550 hrs)*$12 = $5,400 F

Spending variance = Std cost - Actual cost

= (2,000 hrs*$12) - $19,995 = $24,000 - $19,995 = $4,005 F

2) Contribution margin per minute for Premium = Contribution margin per unit/Machine minutes per unit

= $54/12 min = $4.5 per minute

Contribution margin per minute for Superior = $40/8 min = $5 per minute

The contribution margin per minute is higher for superior product, therefore all available machine minutes will be utilized for Superior product as the demand for each product is unlimited.

Maximum possible contribution margin = 204,000 minutes*$5 per minute (for superior product)

= $1,020,000

Therefore the correct option is C) $1,020,000.

3) Labor rate variance = (Std rate - Actual rate)*Actual direct labor hours

= ($18.50 - $18.25)*950 = $237.50 Favorable

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