Question

Waterway Family Instruments makes cellos. During the past year, the company made 6,380 cellos even though the budget planned for only 5,580. The company paid its workers an average of $15 per hour, which was $1 higher than the standard labor rate. The production manager budgets four direct labor hours per cello. During the year, a total of 24,790 direct labor hours were worked.

(a) Calculate the direct labor rate and efficiency variances. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Direct labor rate variance		$Enter a dollar amount	Select an option                                                          UnfavorableNot ApplicableFavorable
Direct labor efficiency variance		$Enter a dollar amount	Select an option                                                          FavorableUnfavorableNot Applicable

Answer 1

Solution

Direct labor rate variance		$ 24,790	Unfavorable
Direct labor efficiency variance		$ 10,220	Favorable

Working

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                  14.00	-	$                   15.00	)	x	24790
	-24790
	Variance		$           24,790.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	25520	-	24790	)	x	$           14.00
	10220
	Variance		$           10,220.00			Favourable-F

.

Standard DATA for		6380	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct labor	( 4 Hour x 6380 Units)=25520 Hour	$                14.00	$          357,280.00

.

Actual DATA for		6380	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct labor	24790	$         15.00	$       371,850.00