The standard direct labor cost per unit for a company was $14 (= $28 per hour ×

Question

The standard direct labor cost per unit for a company was $14 (= $28 per hour × 0.5 hours per unit). During the period, actual direct labor costs amounted to $91,000, 3,200 labor-hours were worked, and 5,600 units were produced.

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 $14 (= $28 per hour × 0.5 hours per unit). During the period, actual direct labor costs amounted to $91,000, 3,200 labor-hours were worked, and 5,600 units were produced.

Explanation / Answer

Direct labor price variance = ( Standard rate - Actual rate) x Actual hours of production

=(28 - 28.4375) x3200 = $1400 U

Labor efficiency variance = ( Actual production - standard production) x standard rate per unit

=( 5600 -6400) x14 = $ 11,200 U

Note: Standard production = Actual hours worked / standard time per unit.

So it works out to 3200 / 0.5 = 6400 units.

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