Question

Tico Inc. produces plastic bottles. Each bottle has a standard labor requirement of 0.03 hour. During the month of April, 900,000 bottles were produced using 25,200 labor hours @ $15.00. The standard wage rate is $13.50 per hour. Required: Calculate the total variance for production labor for the month of April. Enter amounts as positive numbers and select Favorable or Unfavorable.

Answer 1

• All working forms part of the answer
• Actual Data

Actual DATA for		900000	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct labor	25200	$              15.00	$        378,000.00

• Standard Data

Standard DATA for		900000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct labor	( 0.03hr x 900000 units)=27000hr	$                13.50	$     364,500.00

• Labor rate & Efficeincy Variance (for understanding)

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     13.50	-	$                    15.00	)	x	25200
	-37800
	Variance		$            37,800.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	27000	-	25200	)	x	$                        13.50
	24300
	Variance		$            24,300.00			Favourable-F

• ANSWER: Total variance = Labor Spending Variance

Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$           364,500.00	-	$          378,000.00	)
	-13500
	Variance		$            13,500.00			Unfavourable-U

--Answer = $ 13,500 Unfavourable