Answer:
Guillermo's Oil and Lube Company
Calculating the Direct Labor Rate Variance and the Direct Labor Efficiency Variance
a1. Direct labor rate variance (LRV) = Actual Labor Rate minus Standard Labor Rate multiplied by Actual hours worked
= $16 - $15 x 291
= $291 U
a2. Direct labor efficiency variance (LEV) = Standard hours minus Actual hours x Standard hourly rate
= 297 - 291 x $15
= $90 F
b1. Direct labor rate variance (LRV) = the difference between the actual wages paid and the standard wages
= (Actual labour rate x actual hours) - (standard rate x actual hours)
= ($16 x 291) - ($15 x 291)
= $4,656 - $4,365
= $291 U
b2. Direct labor efficiency variance = the difference between the actual number of direct labor hours worked and budgeted direct labor hours that should have been worked based on the standards
(291 x $15) - (297 x $15)
4,365 - 4,455
= $90 F
c. Total Direct labor rate variance (LRV) = Actual Wages minus Standard Wages
= (Actual labor rate x Actual hours) - (Standard labor rate x Standard hours)
= ($16 x 291) - ($15 x 297)
= $4,656 - $4,455
= $201 U
d. If actual wage rate paid in June was $14.00:
d1. Direct labor rate variance (LRV) = Actual Labor Rate minus Standard Labor Rate multiplied by Actual hours worked
= $14 - $15 x 291
= $291 F
d2. Direct labor efficiency variance (LEV) = Standard hours minus Actual hours x Standard hourly rate
= 297 - 291 x $15
= $90 F
d3. Total Direct labor rate variance (LRV) = Actual Wages minus Standard Wages
= (Actual labor rate x Actual hours) - (Standard labor rate x Standard hours)
= ($14 x 291) - ($15 x 297)
= $4,074 - $4,455
= $381 F
Explanation:
a) Data and Calculations
Actual number of oil changes performed: 990
Standard number of direct labor hours to for 990 oil changes = 990 x 0.3 hours (since 18 minutes = 0.3 hours or 18/60) = 297 hours
Actual number of direct labor hours worked: 291 hours
Actual rate paid per direct labor hour: $16.00
Standard rate per direct labor hour: $15.00
b) The impact on direct labor rate variance if the actual wage rate paid in June was $14 was to turn the unfavorable labor rate variance into a favorable variance of $291 and the total direct labor variance would have been a favorable variance $381 instead of an unfavorable variance of $201.
