After evaluating Null Company’s manufacturing process, management decides to est

Question

After evaluating Null Company’s manufacturing process, management decides to establish standards of 2 hours of direct labor per unit of product and $16.90 per hour for the labor rate. During October, the company uses 14,600 hours of direct labor at a $249,660 total cost to produce 7,500 units of product. In November, the company uses 23,900 hours of direct labor at a $411,080 total cost to produce 7,900 units of product. (1) Compute the rate variance, the efficiency variance, and the total direct labor cost variance for each of these two months. (Round your "AR" and "SR"

Explanation / Answer

Labor rate variance = actual quantity*actual rate - actual quantity*standard rate

October: actual labor hours = 14,600 hours. cost = $249,660. actual rate = 249,660/14,600 = $17.10 per hour

standard rate = $16.9 per hour.

labor rate variance for october = 14,600*17.1 - 14,600*16.9 = $2,920 (unfavorable)

November: actual labor hours = 23,900 hours. cost = 411,080. actual rate = 411,080/23,900 = $17.2

labor rate variance for november = 23,900*17.2 - 23,900*16.9 = $7,170 (unfavorable)

2. Efficiency variance = actual hours*standard rate - standard hours*standard rate

October: actual labor hours = 14,600 hours. standard rate = $16.9 per hour. standard hours = 7500 units*2 hours per unit = 15,000 hours.

Efficiency variance = 14,600*16.9 - 15,000*16.9 = -$ 6,760 (favorable)

November: actual hours = 23,900 hours. standard hours = 7900*2 = 15,800

efficiency variance = 23,900*16.9 - 15,800*16.9 = $136,890 unfavorable

Total direct labor cost variance = rate variance+efficiency variance

For October: 2920 (unfavorable) - 6760 (favorable) = - $3,840 (favorable)

For november: 7170 (unfavorable)+136,890 (unfavorable) = $144,060 (unfavorable)

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