Question

Use the following data to find the total direct labor cost variance if the company produced 3,500 units during the period.

Direct labor standard (4.00 hrs. @ $6.70/hr.)

$26.80 per unit

Actual hours worked

12,300

Actual rate per hour

$7.30

Answer 1

Standard cost = (3500 units x 4 hours per unit) x $ 6.70 per hour = $ 93,800

Actual cost = 12300 hours x $ 7.30 = $ 89,790

Variance = 93800 - 89790 = $ 4,010

Total Direct Labor COst Variance = $ 4,010 FAVOURABLE because actual cost is less than standard cost.

Above variance is classified into "Rate" and "Efficiency" Variance.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                        6.70	-	$                       7.30	)	x	12300
	-7380
	Variance		$              7,380.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	14000	-	12300	)	x	$                           6.70
	11390
	Variance		$            11,390.00			Favourable-F
Total Labor Cost Variance
(	Standard Cost	-	Actual Cost	)
(	$             93,800.00	-	$            89,790.00	)
	4010
	Variance		$              4,010.00			Favourable-F