The standard direct labor cost per unit for a company was $16.00 (= $32 per hour

Question

The standard direct labor cost per unit for a company was $16.00 (= $32 per hour × 0.5 hours per unit). During the period, actual direct labor costs amounted to $85,000, 2,500 labor-hours were worked, and 6,300 units were produced.

Required:
Compute the direct labor price and efficiency variances for the period. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

The standard direct labor cost per unit for a company was $16.00 (= $32 per hour × 0.5 hours per unit). During the period, actual direct labor costs amounted to $85,000, 2,500 labor-hours were worked, and 6,300 units were produced.

Required:
Compute the direct labor price and efficiency variances for the period. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Explanation / Answer

SRSH                                     SRAH                                                    ARAH

16 x 3,150                                           16 x 2500                                               $ 85,000

= $ 50,400                                          = $ 40,000

SR = Standard rate for labor hour = $ 16

SH = Standard labor hour = 0.5 x 6,300 = 3,150 hours

ARAH = Actual labor worked = $ 85,000

AH =Actual labor hour = 2,500 hours

AR = Actual rate for labor hour = $ 34

Labor price variance = SRAH – ARAH = $ 40,000 – $ 85,000 = - $ 45,000               U

Labor efficiency variance = SRSH – SRAH = $ 50,400 – $ 40,000 = $ 10,400          F

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