Question

Direct Labor Variances

The following data relate to labor cost for production of 7,200 cellular telephones:

Actual:	4,840 hrs. at $12.8
Standard:	4,760 hrs. at $13.1

a. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Rate variance	$
Time variance	$
Total direct labor cost variance	$

b. The employees may have been less-experienced or poorly trained, thereby resulting in a   labor rate than planned. The lower level of experience or training may have resulted in   efficient performance. Thus, the actual time required was   than standard.

Answer 1

a. Direct labor rate variance is calculated by subtracting actual labor rate from standard labor rate and multiplying with actual hours

Basically, it's a difference between a ) Actual payment to workers for the hours they actually worked and b) if the payment made to them by standard rate

Direct labor rate variance = (Actual labor rate - Standard labor rate) X Actual labor hours paid for

= ( $12.8 - $13.1) X 4,840 hours

(-$0.3) X 4,840 hours

-$1,452 ( favorable)

As the actual labor rate is lower than standard so, it results in favorable

Direct labor time variance

It's calculated by deducting standard hours for actual output from actual hours worked and then multiplying with standard rate

Basically, it indicates whether workers have worked efficiently or not

Direct labor time variance = ( Actual labor hours worked - standard labor hours for actual output ) X Standard labor rate

=(4,840 hours -4,760 hours ) X $13.1

$1,048 ( unfavorable)

It's clear that the worker have not worked efficiently and took more labor hours than standard labor hours. therefore variance is unfavorable

Direct labor cost variance is the difference between actual direct labor cost incurred for the production and standard direct labor cost for the actual units produced

Total Direct labor cost variance = (Actual hours paid for X actual rate) - (Standard hours for actual output X standard rate )

= (4,840 hours X $12.8 ) - (4,760 hours X $13.1)

$61,952-$62,356

-$404 (favorable)

Also, it can be solve by using equation

Total Direct labor cost variance = Direct labor rate variance + Direct labor time variance

-$1,452+ $1,048

-$404 (favorable)

b. We have filled the blanks and used bold words to show the words which should be used in that blank

lower labor rate

inefficient performance

greater than standard

Explaination ;

If we hire less experienced employees then, labor rate will obviously less.

The employees which are not experienced will take more time to complete task than experienced person

and which leads to inefficiency in performance