Tip Top Corp. produces a product that requires 2 standard hours per unit at a st
ID: 2565596 • Letter: T
Question
Tip Top Corp. produces a product that requires 2 standard hours per unit at a standard hourly rate of $10 per hour. If 2,600 units required 5,100 hours at an hourly rate of $10.2 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
a. Direct labor rate variance $ Unfavorable b. Direct labor time variance $ Favorable c. Direct labor cost variance $Explanation / Answer
Answer:-Labor cost variance = Standard Cost – Actual cost
=$52000– $52020 = $20 (-) Unfavourable
Where:-
Standard cost = Standard rate hour*stanadard hour per unit*Actual units
=$10 per hour *2 stanadard hours per unit*2600 units
= $52000
Actual cost = 5100 hours *$10.2 per hour = $52020
Labor Rate variance = (Standard rate – Actual rate) * Actual payment hour
= ($10 per hour - $10.2 per hour)*5100 hours
= $1020 (-) Unfavourable
Labor Time variance = (Standard hours- Actual hours)*Standard rate per hour
=(5200 hours – 5100 hours)*$10 per hour
= $1000 + Favourable
Where:-
Standard hours = Standard hours per unit*Actual units
=2 standard hours per unit*2600 units
= 5200 hours
Explanation:-
Labor cost variance = Labor rate variance + Labor time (efficiency) variance
$20 (-) Unfavourable= $1020 (-) Unfavourable + $1000 + Favourable
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