In: Accounting
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.
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.