Laura\'s Music manufactures harmonicas laura uses standard costs to judge perfor

Question

Laura's Music manufactures harmonicas laura uses standard costs to judge performance Recently, a clerk mistakenly threw away some of the records, and only partial data for November exist Laura knows that the total direct labor variance for the month was $360 F and that the standard labor rate was $9 per hour A recent pay cut caused a favorable labor price variance of $0 70 per hour The standard direct labor hours for actual November outputs were 5 850 Requirements Find the actual number of direct labor hours worked during November First, find the actual direct labor rate per hour Then, determine the actual number of direct labor hours worked by setting up the computation of the direct labor variance as given Compute the direct labor rate and efficiency variances. Do these variances suggest that the manager may have made trade-offs? Explain

Explanation / Answer

1.

Actual Labor rate = standard rate - rate cut advantage = 9 - 0.70 = $8.30 per hour

So, total labor variance = 9 * 5850 - Actual hours * 8.30 = -360

=> Actual hours = 6300

2.

Direct Labor rate Variance = (9 - 8.30) 6300 = $4410F

Direct Labor Efficiency Variance = (5850 - 6300) $9 = $4050UF

Yes, the manager has made a trade-off as the increase in the actual labor hours are being compensated by the labor rate cut and the total labor variance has fallen to favourable $360.

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