Question

Direct Labor Variances

The following data relate to labor cost for production of 5,000 cellular telephones:

Actual:	3,360 hrs. at $16.2
Standard:	3,310 hrs. at $16.4

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.

Actual rate = $16.2 per hour

Standard rate = $16.4 per hour

Actual time = 3,360 hours

Standard time = 3,310 hours

Rate variance = Actual time x ( Standard rate - Actual rate)

= 3,360 x (16.4-16.2)

= 3,360 x (0.2)

= $672 favorable

Time variance = Standard rate x ( Standard time - Actual time)

= 16.4 x (3,310-3,360)

= 16.4 x (-50)

= $820 unfavorable

Total direct labor cost variance = ( Standard rate x Standard time) - ( Actual rate x Actual time)

= (16.4 x 3,310) - (16.2 x 3,360)

= 54,284-54,432

= $148 unfavorable

Rate variance	$672	favorable
Time variance	$820	unfavorable
Total direct labor cost variance	$148	unfavorable

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