The standard cost of product 2525 includes 2.80 hours of direct labor at $15.00
ID: 2491980 • Letter: T
Question
The standard cost of product 2525 includes 2.80 hours of direct labor at $15.00 per hour. The predetermined overhead rate is $21.00 per direct labor hour. During July, the company incurred 4,100 hours of direct labor at an average rate of $15.11 per hour and $79,600 of manufacturing overhead costs. It produced 1,400 units. Compute the total, price, and quantity variances for labor. Total labor variance Labor price variance Labor quantity variance. Compute the total overhead variance. Total overhead varianceExplanation / Answer
Ans) Given
Standard rate per labour hour = $15
Actual rate per labour hour = $15.11
Actual labour hours = 4100hrs
Standard labour hrs for one unit = 2.8hrs
Actual units produced = 1400 units
Standard labour hrs for actual output = 1400*2.8 = 3920hrs
Predetermined Overhead rate per labour hour = $21
Actual Overhead Incurred = $79,600
a) 1. Total Labour Variance = Standard rate * Standard hours for actual output - Actual rate * Actual hours
= 15 * 3920 - 15.11 * 4100 = 58800 - 61951 = - 3151
= $3151 unfavourable
2. Labour price Variance = Actual hours ( Standard rate - Actual rate )
= 4100 * ( 15 - 15.11 )
= 4100 * -0.11 = -451
= $ 451 unfavourable
3. Labour Quantity Variance = Standard rate ( Standard hours - Actual hours )
= 15 * ( 3920 - 4100 )
= 15 * -180 = -2700
= $2700 unfavourable
b) 1. Total Overhead Variance = Absorbed Overhead - Actual Overhead
= Standard hrs for actual output * predermined rate per direct labour hour - Actual overhead
= 3920 *21 - 79600
= 82320 - 79600 = 2720
= $2720 Favourable
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