Exercise 8-14B Calculating and explaining labor price and usage variances Sparta

Question

Exercise 8-14B Calculating and explaining labor price and usage variances Sparta Landscaping Company established the following standard labor cost data to provide complete lawn care service (cutting, edging, trimming, and blowing) for a small lawn. Sparta planned each lawrn to require 2 hours of labor at a cost of $18.00 per hour. The company actually serviced 500 lawns us- ing an average of 1.75 labor hours per lawn. Actual labor costs were $19.20 per hour Required a. Determine the total labor variance and indicate whether the variance is favorable (F) or b. Determine the labor price variance and indicate whether the variance is favorable (F) or c. Determine the labor usage variance and indicate whether the variance is favorable (F) or d. Explain what could have caused the variances computed in Requirements b and c. unfavorable (U). unfavorable (U). unfavorable (U).

Explanation / Answer

Standard direct labour hours per lawn = 2 hours

Standard direct labour cost per hour = $18

Lawns actually serviced = 500

Actual direct labour hours per lawn = 1.75 hours

Actual direct labour cost per hour = $ 19.2

a. Total labour variance = (actual hours * actual rate) - (standard hours * standard rate)

= (500 * 1.75 * 19.2) - (500 * 2 * 18) = 1200 favourable.

b. Labour price variance = Actual hours * (standard rate - actual rate)

= 500 * 1.75 (18 - 19.2)

= 1050 unfavourable.

c. Labour usage variance = Standard rate * (standard hours - actual hours)

= 18 * [(500 * 2) - (500 * 1.75)]

= 2250 favourable

d. Labour price variance was caused due to the difference in the standard price and the actual price paid to the labour. The actual price paid exceeded the standard by 1.2 (19.2 - 18) and that caused the unfavourable labour price variance.

Labour usage variance was caused due to the difference in the standard labour hours per lawn and the actual labour hours per lawn. The actual labour hours used were less than the standard by 0.25 (2 - 1.75) and that caused the favourable labour usage variance.  

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