Vanderwaal Company uses a standard costing system. In August, 5,400 actual labor

Question

Vanderwaal Company uses a standard costing system. In August, 5,400 actual labor hours were worked at a rate of $12.90 per hour. The standard number of hours is 5,160 and the standard wage rate is $13.70 per hour.

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Account Titles and Explanation

Debit

Credit

(To record labor cost)

Vanderwaal Company uses a standard costing system. In August, 5,400 actual labor hours were worked at a rate of $12.90 per hour. The standard number of hours is 5,160 and the standard wage rate is $13.70 per hour.

Explanation / Answer

We summarize as follows

LAbor RAte Variance = Actual time ( Standard rate - Actual Rate)

It measures change in labor cost due to change in labor rate per hour

= 5400 ( 13.70 - 12.90 ) , =4320 Favourable

Labor efficiency variance = Standard rate ( Standard time allowed - actual time)

= 13.70 ( 5160 -5400) , = 3288 Unfavourable

Journal entry will be

Work In process 69660

Wages Payable 69660

Expense booked in Work in process account and amount made due

Budget Time Rate Cost 5160 hrs 13.70 per hr 70692 Actual Cost Time Rate Cost 5400 hrs 12.90 per hr 69660

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