Question

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

Standard labor hours per unit of output	4.9	hours
Standard labor rate	$20.70	per hours

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

Actual hours worked	7,500	hours
Actual total labor cost	$156,000
Actual output	1,500	units
Required: a. What is the labor rate variance for the month? (Input the amount as a positive value. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)   Labor rate variance $. F/U/None b. What is the labor efficiency variance for the month? (Input the amount as a positive value. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)   Labor efficiency variance $    F/U/None

Answer 1

Part a --- Labor Rate Variance

Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:

Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)

Here, actual time means time for which wage has been paid.

Labor Rate Variance
Actual Hourly Rate (AHR) ($156,000 / 7500)	$20.80	Per Hour
Standard Hourly Rate (SHR)	$20.70	Per Hour
Variance or Difference in Rate	$0.10	Per Hour
x Actual Labor Hours worked	7500	Hours
Labor Rate Variance	$750	Unfavorable

Unfavorable Labor Rate Variance because actual hourly rate paid is higher than standard hourly rate.

Part b ---- Labor Quantity Variance

Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.

Labor Quantity / Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production	1500	Units
x Allowed Standard Hours Per Unit	4.9	hours
Total Standard Hours Allowed for actual production (SHAP)	7350	hours
Actual Labor Hours Worked (AH)	7500	hours
Variance or Difference in Hours (AH - SHAP)	150	hours
x Standard Hourly Rate (SHR)	$20.70	per hour
Labor Efficiency Variance	$3,105	Unfavorable

Unfavorable Labor Efficiency Variance because the Actual Hours Worked is higher than the allowed standard hours at standard rate

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