Question

After evaluating Null Company's manufacturing process, management decides to establish standards of 3 hours of direct labor per unit of product and 15.90 per hour for the labor rate. During October, the company uses 19,100 hours of direct labor at a 307,510 total coset to produce 6500 units of product . In November, the company uses 21,400 hours of direct labor at 346,680 total cost to produce 6,800 units of product. 1) compute the rate varieance the efficiencty vairiances and the total direct labor cost variance for each of these two months October and November

Answer 1

Standard Labour hour per unit = 3 Hours

Standard Rate per Lobour Hour (SR)= $ 15.90

	Production	Standard Labour Hrs (SH)	Actual Labour Hour (AH)	Actual Rate (AR)
October	6,500	19,500	19,100	16.10
November	6,800	20,400	21,400	16.20

Direct Labour Rate Variance:

Direct Labour Rate Variance = Actual Labour Hours * ( Stnadard Rate - Actual rate)

If answer is positive, variance is favourable & if negative variance is unfavourable

October Month:

Direct Labour Rate Variance = AH * (SR-AR) = 19100 * (15.90-16.10) = -3,820 Unfavourable

November Month:

Direct Labour Rate Variance = AH * (SR-AR) = 21,400 * (15.90-16.20) = -6,420 Unfavourable

Direct Labour Efficiency Variance:

Direct Labour Efficiency Variance = Standard Rate * ( Standard Hours - Actual Hours)

October Month:

Direct Labour Efficiency Variance = SR * ( SH - AH) = 15.90 * ( 19,500- 19,100) = 6,360 Favourable

November Month:

Direct Labour Efficiency Variance = SR * ( SH - AH) = 15.90 * ( 20,400- 21,400) = -15,900 Unfavourable

Month	Labour Rate Variance	Labour Efficiency Variance	Total Labour cost variance
October	(3,820)	6,360	2,540
November	(6,420)	(15,900)	(22,320)

Negative value indicates Unfavourable Variance