Question

The following labor standards have been established for a particular product:

Standard labor hours per unit of output		4.5	hours
Standard labor rate	$	19.70	per hour

The following data pertain to operations concerning the product for the last month:

Actual hours worked		6,500	hours
Actual total labor cost	$	130,975
Actual output		1,400	units

Required:

a. What is the labor rate variance for the month?

b.  What is the labor efficiency variance for the month?

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Wangerin Corporation applies overhead to products based on machine-hours. The denominator level of activity is 8,400 machine-hours. The budgeted fixed manufacturing overhead costs are $305,760. In April, the actual fixed manufacturing overhead costs were $311,640 and the standard machine-hours allowed for the actual output were 8,700 machine-hours.

Required:

a. Compute the budget variance for April.

b. Compute the volume variance for April.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

• Question #1

Part [a] with calculation

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              19.70	-	$                    20.15	)	x	6500
	-2925
	Variance		$              2,925.00			Unfavourable-U

Part [b], with calculation

Labour Efficiency Variance
(	Standard Hours = 1400 units x 4.5 hrs	-	Actual Hours	)	x	Standard Rate
(	6300	-	6500	)	x	$                        19.70
	-3940
	Variance		$              3,940.00			Unfavourable-U

• Question #2

--Working
Fixed overhead rate = $ 305760 / 8400 MHs = $ 36.40 per MHs

Part [a] with calculation

Fixed Overhead Production Budget Variance
(	Budgeted Fixed Overhead	-	Actual Fixed Overhead incurred	)
(	$                   305,760.00	-	$          311,640.00	)
	-5880
	Variance		$              5,880.00			Unfavourable-U

Part [b] with calculation

Fixed Overhead Production Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed = 8700 MHs x $ 36.40	-	Budgeted Fixed Overhead	)
(	$                   316,680.00	-	$          305,760.00	)
	10920
	Variance		$            10,920.00			Favourable-F