Question

The standard direct labor cost per unit for a company was $30 (= $20 per hour × 1.5 hours per unit). During the period, actual direct labor costs amounted to $198,300, 10,100 labor-hours were worked, and 5,500 units were produced. Required: Compute the direct labor price and efficiency variances for the period. (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

Answer:

Labor Price Variance = 3,700 F

Labor Efficiency variance = $37,000 U

Explanation:

Labor Price Variance = (Standard Rate - Actual Rate) $\times$ Actual Hours

Standard Rate Given = $20 per hour

Actual Cost = $198,300

Standard Rate $\times$ Actual Hours = $20 $\times$ 10,100 hours = $202,000

Labor Price Variance = $202,000 - $198,300 = 3,700 Favorable

Labor efficiency Variance = (Standard Hours - Actual Hours) $\times$ Standard Rate

Standard Hours for Actual Output = 5,500 $\times$ 1.5 = 8,250 hours

Actual Hours = 10,100 hours

Standard Rate = $20 per hour

Labor Efficiency variance = (8,250 - 10,100) $\times$ $20 = - $37,000 Unfavorable as the amount is negative.

Final Answer

Labor Price Variance = 3,700 F

Labor Efficiency variance = $37,000 U