Question

In: Accounting

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

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.

Solutions

Expert Solution

  • 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)


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