Question

The following information was compiled by Wildhorse Company:

Expected volume of production		110,000	units
Actual level of production		105,000	units
Budgeted fixed overhead		$220,000
Actual fixed overhead		$228,150
Variable overhead rate per direct-labour hour		$8
Actual variable overhead		$406,000
Standard direct-labour hours allowed per unit produced		0.5	hour
Standard direct-labour rate per hour		$8.05
Actual direct-labour hours of input		52,400	hours
Actual direct-labour rate per hour		$8.10

Compute the following variances:

Direct-labour flexible-budget variance $______ (Favourable/Unfavourable/neither)

Answer 1

Standard direct labour hours per unit	0.50
Number of actual production units	105,000.00
Standard labour hours (105000 x 0.5)	52,500.00
Standard direct labour hour rate per hour	8.05
Standard direct labour cost should have been (52500 x 8.05)	$422,625.00
Actual direct labour hours used	52,400.00
Actual direct labour hour rate	8.10
Actual cost of labour (52400 x 8.10)	$424,440.00
Direct labour hour flexible budget variance (424,440 – 422,625)	$1,815.00 (U)

           

Thus, the actual direct labour flexible budget variance is $1,515.00 and it is unfavourable as the cost of direct labour is higher than the standard labour cost.