Question

Hutto Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

Direct materials (14 lbs. @ $4 per lb.)			$56
Direct labor (3 hrs. @ $16 per hr.)			48

During May the company incurred the following actual costs to produce 8,100 units.

Direct materials (116,300 lbs. @ $3.80 per lb.)		$	441,940
Direct labor (28,900 hrs. @ $16.10 per hr.).			465,290

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

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

(2) Compute the direct labor rate variance and the direct labor efficiency variance. Indicate whether each variance is favorable or unfavorable.

Answer 1

• Requirement 2

Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH = 8100 units x 3 per unit	x	SR
28,900	x	$                16.10		28,900	x	$        16.00		24,300	x	$              16.00
	$          465,290.00				$     462,400.00				$           388,800.00
Rate Variance - Labor			$         2,890.00	Efficency Variance - Labor			$       73,600.00
Labor Rate Variance					$                                                                   2,890.00			Unfavourable
Labor Efficiency Variance					$                                                                 73,600.00			Unfavourable
Total Labor Cost (Spending) Variance)					$                                                                 76,490.00			Unfavourable
Note:
>	Labor Price Variance is Unfavourable because Actual rate (AR) is MORE than Standard Rate (SR)
>	Labor quantity or Efficiency Variance is unfavourable because Actual Hrs (AH) is MORE than Standard Hrs (SH)