In: Accounting
ABC Company set the following direct labor standards for its single product: standard hours standard rate direct labor 5 hours per unit $5 per hour During June, ABC Company produced 10,100 units. Direct laborers worked a total of 69,000 hours in June and were paid a rate of $12.75 per hour. Calculate the total direct labor variance for June. If the variance is favorable, place a minus sign in front of your answer (i.e., -5000). If the variance is unfavorable, enter your answer as a number (i.e., 5000).
Given Information,
Standard labor hours per unit = 5 hours
Standard labor rate = $ 5 per hour
Actual production 10,100 Units
Actual hours worked = 69,000 hours
Actual labor rate = $ 12.75 per hour
Calculation of Total direct labor variance as folllows:
Total direct labor variance = ( AH * AR ) - ( SH * SR )
= ( 69,000 * $ 12.75 ) - ( 50,500 * $ 5 )
= $ 879,750 - $ 252,500
= $ 627,250
Thus, Total direct labor variance $ 6,27,250
SH (Standard hours for actual production)= Actual production * Standard labor hours required per unit
= 10,100 Units * 5 hour
= 50,500 hours
We can check our answer alternatively,
Total direct labor variance = Direct Labor price variance + Direct labor quantity/efficiency variance
= $ 534,750 + $ 92,500
= $ 627,250
Thus, Total direct labor variance $ 6,27,250.
Direct Labor price variance = ( AR -SR ) * AH
= ( $ 12.75 - $ 5 ) * 69,000
= $ 534,750
Direct labor quantity/efficiency variance = ( AH - SH ) * SR
= ( 69,000 - 50,500 ) * $ 5
= $ 92,500
Note: Variances without negtive sign represents Unfavorable Variance.
Where,
AH = | Actual hours |
SH = | Standard hours for Actual production |
AR = | Actual Rate per hour |
SR = | Standard Rate per hour |