Joe Malay received the following report on the Division\'s operation for the mon

Question

Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $26,000 unfavorable. Direct labor efficiency variance = $74,000 (?) The standard calls for 3.10 direct labor hours per unit of output at $29.10 per labor hour. The standard direct labor hours for the units manufactured is 21.00% more than the total direct labor hours actually worked in August. What was the total standard cost applied to production? Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $26,000 unfavorable. Direct labor efficiency variance = $74,000 (?) The standard calls for 3.10 direct labor hours per unit of output at $29.10 per labor hour. The standard direct labor hours for the units manufactured is 21.00% more than the total direct labor hours actually worked in August. What was the total standard cost applied to production?

Explanation / Answer

Let the actual hours worked be "X"

Standard hours for actual output = X *1.21 = 1.21X

Efficiency variance is a favorable variance as standard hours is more than actual hours

Efficiency variance = SR (AH -SH )

   - 74000 = 29.10 ( X - 1.21X )

   -74000 =   29.10 * - .21x

   -74000 = - 6.111 x

     x = -74000 / - 6.111                      [minus sign will cancellded with each other]

         =   12109.31 hours

Actual hours = 12109 .31

standard hours = 12109.31 * 1.21 = 14652.27 hours

STandard cost applied = 14652.27 * 29.10

                                           = $ 426380.95

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