Question

The standard cost of product 5252 includes 2.80 hours of direct labor at $14.00 per hour. The predetermined overhead rate is $20.00 per direct labor hour. During July, the company incurred 3,700 hours of direct labor at an average rate of $13.53 per hour and $81,400 of manufacturing overhead costs. It produced 1,300 units. Compute the total, price, and quantity variances for labor.

Answer 1

Solution:
	Total labor variance	$899 Favorable
	Labor price variance	$1,739   Favorable
	Labor quantity variance	$840 Unfavorable
Working Notes:
	Total labor variance
	=Actual Hours x Actual Rate - Standard Hours x Standard Rate
	=3700 x 13.53 - 3640 x 14
	=50,061 - 50,960
	= -$899
	= $899 Favorable
Notes:	Favorable as Actual cost incurred is lesser than standard to be incurred for same units of production
Notes:	Standard Hours = units produced x standard hours per unit
	Standard Hours = 1300 x 2.80
	Standard Hours = 3,640
	Labor price variance
	=Actual Hours x Actual Rate - Actual Hours x Standard Rate
	=3700 x 13.53 - 3700 x 14
	= -$1,739
	=   $1,739   Favorable
Notes:	Favorable as actual rate paid is lower than standard rate per actual hours used.
	Labor quantity variance
	=Actual Hours x Standard Rate - Standard Hours x Standard Rate
	=3700 x 14 - 3640 x 14
	= $840
	= $840 Unfavorable
Notes:	Unfavorable as actual hours used for the same unit of production higher than standard hours required hence it will be unfavorable for the company.