Question

Krizum industries makes heavy construction equipment. the standard for a particular crane calls for 24 direct labor-hours at $16 per direct labor-hour. during a recent period 850 cranes were made. the labor rate variance was zero and the labor efficiency variance was $8,800 unfavorable. how many actual direct labor-hours were worked?

Answer 1

A labor rate variance equal to zero would mean that the standard labor rate is equal to the actual labor rate which is $16 per direct labor-hour. To recall, the formula for labor efficiency variance is:

Labor efficiency variance = (AH - SH) × SR

Where,

AH = actual number of hours worked = unkown

SH = standard number of hours worked = 850 cranes * 24 hours per crane = 20,400 hours

SR = standard labor rate = $16

Substituting the known values to the equation:

$8,800 = [AH – 20,400 hours] * $16 per hour

$8,800 = [AH - 20,400 hours] * $16 per hour

$8,800 = (AH * $16 per hour) – ($326,400)

AH * $16 per hour = $326,400 + $8,800

AH * $16 per hour = $335,200

AH = $335,200 / $16 per hour

AH = 20,950 hours