Question

In: Accounting

erde Company produces wheels for bicycles. During the year, 653,000 wheels were produced. The actual labor...

erde Company produces wheels for bicycles. During the year, 653,000 wheels were produced. The actual labor used was 364,000 hours at $9.60 per hour. Verde has the following labor standards: 1) $10.10 per hour; 2) 0.45 hour per wheel.

Required:

1. Compute the labor rate variance.
$ Favorable

2. Compute the labor efficiency variance.
$ Unfavorable

Solutions

Expert Solution

Answer)

Calculation of Labor rate variance

Labor rate variance = (Standard rate per labor hour – Actual rate per labor hour) X Actual labor hours consumed

                                        = ($ 10.10 -$ 9.60) X 364,000 labor hours

                                        = $ 182,000 (Favorable)

Calculation of Labor efficiency variance

Labor efficiency variance = (Standard labor hours for Actual output – Actual labor hour) X standard rate per labor hour

                                        = (293,850 labor hours -364,000 hours) X $ 10.10 per hour

                                        = $ 708,515 (Unfavorable)

Working Note:

Calculation of Standard labor hours for actual output

Standard labor hours for actual output = Standard labor hours per unit of output X number of units produced

                                                                               = 0.45 hours per wheel X 653,000 wheels

                                                                               = 293,850 labor hours

    

ekkarill92 answered 2 years ago
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