Question

Direct Labor Variances

Assume that Nortel manufactures specialty electronic circuitry through a unique photoelectronic process. One of the primary products, Model ZX40, has a standard labor time of 0.5 hour and a standard labor rate of $13.00 per hour. During February, the following activities pertaining to direct labor for ZX40 were recorded: Direct labor hours used 2,180 Direct labor cost $32,000 Units of ZX40 manufactured 4,600

(a) Determine the labor rate variance.
$Answer

(b) Determine the labor efficiency variance.
$Answer

(c) Determine the total flexible budget labor cost variance.
$Answer

Answer 1

(a)

Labor rate variance = (Actual hours * Actual rate) - (Actual hours * Standard rate)

Actual Quantity * Actual rate = $32,000

Labor rate variance = $32,000 - (2,180 hours * $13.00)

= $32,000 - $28,340

= $3,660 U

Variance is unfavorable because actual cost is greater than the standard cost.

(b)

Labor Efficiency Variance = (Standard rate * Actual Hours) - (Standard rate * Standard hours)

Standard hours = 4,600 units * 0.5 hour

= 2,300 hours

Labor Efficiency Variance = ($13.00 * 2,180) - ($13.00 * 2,300)

= $28,340 - $29,900

= $1,560 F

Variance is favorable because standard hours is more than the actual hours .

(c)

Total flexible budget labor cost variance = Labor rate variance + Labor Efficiency Variance

= - $3,660 + $1,560

= $2,100 U

or

Total flexible budget labor cost variance = Actual cost - Standard cost

= $32,000 - $29,900

= $2,100 U

Variance is unfavorable because actual cost is more than the standard cost.