Question

Russell and Sons, a CPA firm, established the following standard labor cost data for completing what the firm referred to as a Class 2 tax return. Russell expected each Class 2 return to require 4.0 hours of labor at a cost of $30 per hour. The firm actually completed 600 returns. Actual labor hours averaged 3.6 hours per return and actual labor cost amounted to $34.50 per hour. Required Determine the total labor variance and indicate whether it is favorable (F) or unfavorable (U). Determine the labor price variance and indicate whether it is favorable (F) or unfavorable (U). Determine the labor usage variance and indicate whether it is favorable (F) or unfavorable (U).

Answer 1

• All working forms part of the answer
• [1]

Total Labor Variance
(	Standard Cost = 600 x 4 hours x $ 30	-	Actual Cost = 600 x 3.6 hours x $ 34.50	)
(	$                      72,000.00	-	$            74,520.00	)
	-2520
	Variance		$              2,520.00			Unfavourable-U

• [2]

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours = 600 x 3.6 hours
(	$                              30.00	-	$                    34.50	)	x	2160
	-9720
	Variance		$              9,720.00			Unfavourable-U

• [3]

Labour Usage Variance
(	Standard Hours = 600 units x 4 hours	-	Actual Labor Hours = 600 x 3.6 hours	)	x	Standard Rate
(	2400	-	2160	)	x	$                        30.00
	7200
	Variance		$              7,200.00			Favourable-F