Question

Amston Company recently completed 11,900 units of its single product, consuming 48,000 labor hours that cost the firm $748,800. According to manufacturing specifications, each unit should have required 4 hours of labor time at $16.00 per hour.

On the basis of this information, determine Amston’s total labor variance.

Multiple Choice

• $12,800F

• $25,600F

• $12,800U

• $25,280F

• $25,600U

Cost standards for one unit of product no. C1895:
Direct material	3 pounds at $2.80 per pound	$	8.40
Direct labor	5 hours at $7.20 per hour		36.00
Actual results:
Units produced	7,900 units
Direct material purchased	26,300 pounds at $3.00	$	78,900
Direct material used	23,400 pounds at $3.00		70,200
Direct labor	40,800 hours at $7.00		285,600

Assume that the company computes variances at the earliest point in time.

The direct-labor efficiency variance is:

Multiple Choice

• $9,360F.

• $7,988U.

• None of the answers is correct.

• $9,360U.

• $7,988F.

Answer 1

Answer: =$ 12,800 F

Working:

Total Labor variance = (Standard time x Standard rate - Actual time x Actual rate)

                                   =47,600*$16-48,000*$15.6

                                   = 761,600-748,800

                                   =$ 12,800 Favorable

Note:

Actual output = 11,900 units

Actual direct labor hour used = 48,000 hours

Actual direct labor cost = $748,800

Actual rate = Actual direct labor cost / Actual direct labor hour used

= 748,800/48,000

= $15.6 per direct labor hour

Standard time = 4 hour per units

Standard time for actual output = 11,900 x 4

= 47,600 hours

Standard rate = $16.00per hour

Question: 2

Answer: $9,360 U

Working:

Labor efficiency variance = Standard rate x (Standard time - Actual time)

     $7.20(39,500-40,800) = $9,360 unfavorable

Note:

Actual output = 7,900 units

Standard time = 5 hour per units

Standard time for actual output = 7,900 x 5= 39,500 hours

Standard rate = $7.20per hour

Actual direct labor hour used = 40,800 hours