Snazzy Jeans In.c manufactures designer jeans. The company uses standard costing

Question

Snazzy Jeans In.c manufactures designer jeans. The company uses standard costing nd has developed the following information about standards for its product: Materials- 2 yeards per unit; $10 per yard Labor- .25 DL hour per unit; 11 per hour During October, the company experienced an unanticipated spike in demand and increase production. Although planned production was for 8,000 units, the company actually produced 10,000 units. In anticipation of the original production volume, 18,000 yards were purchased at total cost of $175,000. During the month, 22,000 yards of material were used and 2400 direct labor hours were worked. Direct labor cost for the month totaled $27,000. Compute the LABOR price/rate variance and the quantity/efficiency variance for the following (you do not have to calculate labor variances):

Explanation / Answer

Labour Rate Variance = (Std Rate-Actual Rate)*Actual Lbr Hours

= (11-11.25)*2400 ## Actual Rate = 27000/2400 = 11.25

= -600

Labour Efficiency Variance = (Actual hours - Std hours)*Std Rate

= (2400 - 2500)*11 ## Std Hrs = 10000*.25 = 2500

= -1100

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