Question

show calculation and explanation solving Direct Labor Pricce Variance and efficiency variance and the total variance. if they are favorable or unfavorable?

AP x AQ= $350,000

SP x AQ= $315,000

SP x SQ= $450,000

Answer 1

Answer:

Total variance = Standard cost of standard labor hours required for actual output - Actual cost

= SP x SQ - AP x AQ

= $450,000 - $350,000

= $100,000 (Favorable)

Direct Labor Price Variance = Standard cost of actual quantity - Actual cost

= SP x AQ - AP x AQ

= $315,000 - $350,000

= $35,000 (Unfavorable)

Direct Labor efficiency variance = Standard cost of standard labor hours required for actual output -  Standard cost of Actual labor hours

= SP x SQ - SP x AQ

= $450,000 - $315,000

= $135,000 (Favorable)

Total variance = Direct Labor Price Variance  + Direct Labor efficiency variance

=> $100,000 (Favorable) = $35,000 (Unfavorable) + $135,000 (Favorable)

Overall total labor variance is positive because of better efficiencies /productivity. Although there is unfavorable rate variance, higher efficiencies more than offset the adverse price variance resulting is significant favorable total labor variance.