Antuan Company set the following standard costs for one unit of its product. The

Question

Antuan Company set the following standard costs for one unit of its product.

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

15,000

The company incurred the following actual costs when it operated at 75% of capacity in October.

rev: 03_28_2018_QC_CS-122864

4. Compute the direct labor cost variance, including its rate and efficiency variances.

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

Direct materials (3.0 Ibs. @ $5.00 per Ib.) $ 15.00 Direct labor (2.0 hrs. @ $11.00 per hr.) 22.00 Overhead (2.0 hrs. @ $18.50 per hr.) 37.00 Total standard cost $ 74.00

Explanation / Answer

Solution 4:

Standard hours for actual production = 15000 * 2 = 30000 hours

Actual hours = 23000 hours

Standard rate of direct labor = $11 per hour

Actual rate of direct labor = $11.30

Direct labor rate variance = (SR - AR) * AH = ($11 - $11.30) * 23000 = $6,900 U

Direct labor efficiency variance = (30000 - 23000) * $11 = $77,000 F

Direct labor cost variance = Direct labor rate variance + direct labor efficiency variance = $6,900 U + $77,000 F

= $70,100 F

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