Question

Biscuit Company has developed the following standards for one of its products. Direct labor hours is the driver used to assign overhead costs to products.

Direct materials:	10 pounds × $3 per pound
Direct labor:	2.5 hours × $8 per hour
Variable manufacturing overhead:	2.5 hours × $2 per hour
The following activity occurred during the month of June:
Materials purchased:	125,000 pounds at $2.60 per pound
Materials used:	110,000 pounds
Units produced:	10,000 units
Direct labor:	24,000 hours at $7.50 per hour
Actual variable manufacturing overhead:	$51,000

The company records materials price variances at the time of purchase.

The direct labor efficiency variance is

a. $20,000 unfavorable.

b. $8,000 favorable.

c. $20,000 favorable.

d. $8,000 unfavorable. The direct labor rate variance is a. $12,000 favorable. b. $8,000 favorable. c. $8,000 unfavorable. d. $12,000 unfavorable

Answer 1

Answer 1

b) $8,000 favorable.  

Explanation :

Actual labour hours worked = 24,000 hours

Standard labour hours allowerd for 10,000 units = 2.5 hours * 10,000 units = 25,000 hours

Standard Rate = $8 per hour

Direct labor efficiency variance = (Actual labour hours worked - Standard labour hours allowerd) * Standard Rate

= (24,000 hours - 25,000 hours) *  $8 per hour = $8,000 favorable. (ie option b)

Explnation : Since actual labour hours worked is less than Standard labour hours allowerd , the direct labor efficiency variance calculated above is Favorable

Answer 2

a.) $12,000 favorable

Explanation :

Standard Labour Rate = $8 per hour

Actual Labour Rate = $7.50 per hour

Actual labour hours worked = 24,000 hours

Direct labor rate variance = (Actual Labour Rate - Standard Labour Rate ) * Actual labour hours worked

= ($7.50 per hour - $8 per hour) * 24,000 hours = $12,000 favorable (ie option a)

Explanation : Since actual labour rate is less than standard labour rate , the direct labor rate variance calculated above is favorable.