Question

After evaluating Null Company’s manufacturing process, management decides to establish standards of 3 hours of direct labor per unit of product and $16.60 per hour for the labor rate. During October, the company uses 21,000 hours of direct labor at a $352,800 total cost to produce 7,200 units of product. In November, the company uses 23,600 hours of direct labor at a $398,840 total cost to produce 7,600 units of product.

   

(1)	Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months.

Answer 1

• Requirement: OCTOBER

Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ = 7200 units x 14 per unit	x	SP
117,200	x	$           4.80		117,200	x	$            5.00		100,800	x	$               5.00
	$             562,560.00				$          586,000.00				$                   504,000.00
Price Variance - Material			$         23,440.00	Quantity Variance - Material			$     82,000.00
Direct material Price Variance					$                                                                      23,440.00			Favourable
Direct material Quantity Variance					$                                                                      82,000.00			Unfavourable
Total Direct material Variance					$                                                                      58,560.00			Unfavourable
Note:
>	Material Price Variance is favourable because Actual price (AP) is LESS than Standard Price (SP)
>	Material Quantity Variance is unfavourable because Actual Qty (AQ) is More than Standard Qty (SQ)

• Requirement: NOVEMBER

Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ = 7600 units x 14 per unit	x	SP
117,200	x	$           4.80		117,200	x	$            5.00		106,400	x	$               5.00
	$             562,560.00				$          586,000.00				$                   532,000.00
Price Variance - Material			$         23,440.00	Quantity Variance - Material			$     54,000.00
Direct material Price Variance					$                                                                      23,440.00			Favourable
Direct material Quantity Variance					$                                                                      54,000.00			Unfavourable
Total Direct material Variance					$                                                                      30,560.00			Unfavourable
Note:
>	Material Price Variance is favourable because Actual price (AP) is LESS than Standard Price (SP)
>	Material Quantity Variance is unfavourable because Actual Qty (AQ) is More than Standard Qty (SQ)