1. The following information describes a company’s usage of direct labor in a re

Question

1. The following information describes a company’s usage of direct labor in a recent period. The total direct labor cost variance is: Actual hours used 45,000 Actual rate per hour $ 15.00 Standard rate per hour $ 14.50 Standard hours for units produced 47,000:

a. 6,500 favorable

b.29,000 favorable

c. 22,500 unfavorable

d. 22,500 favorable

e. 6,500 unfavorable

2. Fletcher Company collected the following data regarding production of one of its products. Compute the variable overhead cost variance.

b. 4,000 favorable

c. 18,000 unfavorable

d. 18,300 favorable

e. 14,300 unfavorable  

Direct labor standard (2 hrs. e $12.75/hr.) Actual direct labor hours Budgeted units Actual finished units produced Standard variable oH rate (2 hrs. e $14.30/hr.) $28.60 per finished unit Standard fixed OH rate ($336,000/42,000 units) $ 8.00 per unit Actual cost of variable overhead costs incurred $1,140,000 Actual cost of fixed overhead costs incurred 338,000 $ 25.50 per finished unit 81,500 hrs. 42,000 units 40,000 units

Explanation / Answer

Solution 1:

Actual direct labor cost = Actual hours * actual rate = 45000 * $15 = $675,000

Standard direct labor cost = Standard hours * Standard rate = 47000 * $14.50 = $681,500

Direct labor cost variance = Standard cost - Actual cost = $681,500 - $675,000 = $6,500 F

Hence option a is correct.

Solution 2:

Actual cost of variable overhead = $1,140,000

Standard cost of variable overhead = Standard hours * standard rate = (40000*2) * $14.30 = $1,144,000

Variable overhead cost variance = Standard cost - Actual cost = $1,144,000 - $1,140,000 = $4,000 F

Hence option b is correct.

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