2. Walker Enterprise collected the following data regarding production of one of
ID: 340610 • Letter: 2
Question
2. Walker Enterprise collected the following data regarding production of one of its products. Compute the total direct labor cost variance.
Direct labor standard (2 hrs. @ $12.75/hr.)
$
25.50
per finished unit
Actual direct labor hours
81,500
hrs.
Actual finished units produced
40,000
units
Actual cost of direct labor
$
1,100,250
REQUIRED: A. Computer the total direct labor cost variance. B. Compute the direct labor rate variance. C. Compute the direct labor efficiency variance.
Direct labor standard (2 hrs. @ $12.75/hr.)
$
25.50
per finished unit
Actual direct labor hours
81,500
hrs.
Actual finished units produced
40,000
units
Actual cost of direct labor
$
1,100,250
Explanation / Answer
Representation of given information:-
Standered Time per unit = 2hrs.
Std. rate per labur hour = $12.75
Actual Production = 40000 units
Std. time for actual production = 40000 x 2 = 80000 hrs.
Std. Labour cost = 80000 x 12.75 = $1020000
Actual Labour cost = $ 1100250
Actual labour hours = 81500 hrs.
Actual labour rate per hour = 1100250 / 81500 = $13.5 per hour
(A) Total direct labour cost variance = Total Std. direct labour cost - total actual labour cost
= (80000 x 12.75) - (81500 x 13.5)
= 1020000 - 1100250
= $80250 (Adverse Variance)
(B) Direct Labour Rate Variance = (Std. rate per hour - Actual rate per hour ) x Actual Hours
= (12.75 - 13.5 ) x 81500
= 61125 (Adverse variance)
(C) Direct Labour effiency variance = (Std. time - Actual time ) x Std. Rate per hour
= (80000 - 81500) x 12.75
= 19125 (Adverse Variance)
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