Acme Company\'s production budget for August is 18.000 units and includes the fo

Question

Acme Company's production budget for August is 18.000 units and includes the following component unit costs: direct materials. $8.00: direct labor. $11.20: variable overhead. $6.00. Budgeted fixed overhead is $44,000. Actual production in August was 18.400 units, actual unit component costs incurred during August include direct materials. $9.40: direct labor. $10.00; variable overhead. $6.60. Actual fixed overhead was $46,700. the standard direct labor cost per unit consists of 0.5 hour of labor time at $22.4 per hour. During August. $184.000 of actual labor cost was incurred for 8.000 direct labor hours. Required: Calculate the labor rate variance and labor efficiency variance for August. (Indicate the effect of each variance by selecting "F" for favorable. "U" for unfavorable.)

Explanation / Answer

Answer 1 labour rate variance = (Actual labour rate per hour - standard labour rate per hour ) * Actual labour hours Actual labour rate per hour = $184000 / 8000 hours = $23 per hour standard labour rate per hour = $22.40 per hour Actual Labour hours = 8000 Labour rate variance = (23 - 22.40 ) * 8000 =$4800 Unfavourable Answer 2 Labour efficiency variance = (Actual labour Hours - standard labour hours) * standard labour rate per hour Actual Labour hours = 8000 Standard labour hours = 18400 units * 0.5 hour = 9200 hours standard labour rate per hour = $22.40 per hour Labour efficiency variance = (8000 - 9200) * 22.40 = -$26880 Favourable In $ Labour rate variance 4800 U Labour efficiency variance 26880 F

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