<u>Complete Question:</u>
LVN Corporation's direct labor costs and related information for the month of June were as follows:
500 Actual total direct labor-hours
1000 Standard total direct labor-hours
Total direct labor cost $16,500
Unfavorable direct labor rate (rate) variance $600
What is LVN Corporation's direct labor efficiency variance?
A. $16,500 unfavorable
B. $7950 unfavorable
C. $7950 favorable
D. $16,500 favorable
Answer:
$7,950 Unfavorable
Explanation:
As we know that:
"Labor Efficiency Variance = (Actual Labor Hours Worked for Actual Production − Standard Hours for Actual Production) * Standard Rate"
If we consider the parenthesis elements in the formula, we can decide whether the variance is favorable or adverse. If the actual labor hours worked are more than the budget (standard hours for actual production) then the variance (difference) is adverse because greater the hours worked for same level of activity (Production Units) the greater is the labor cost. Hence the variance would be adverse and vice versa.
Here
Actual Hours Worked for actual production are 1,000 Hours
Actual total labor cost is $16,500
Standard Hours Worked for actual production are 500 Hours
Standard rate per hour is $15.9 per Hour <u>(Step 1)</u>
By putting values, we have:
Direct Labor Efficiency Variance = (1000 Hrs - 500 Hrs) * $15.9 per hour
= (1000 - 500) * $15.9 per share
= $7,950 Unfavorable
<h2><u>
Step1: Find Standard Labor Rate</u></h2>
We can find the standard labor rate using the following labor rate variance formula:
Labor Rate Variance = (Standard Rate per Hour * Actual Hours Worked) − (Actual Rate per Hour * Actual Hours Worked)
Here
(Actual Rate per Hour * Actual Hours Worked) is total labor cost which is $16,500
Actual Hours Worked is 1000 Hours
Labor Rate Variance is ($600)
By putting values, we have:
($600) = (1000 Hours * Standard Labor Rate) - $16,500
($600) + $16,500 = 1000 Hours * Standard Labor Rate
$15,900 = 1000 Hours * Standard Labor Rate
Standard Labor Rate = $15,900 / 1000 Hours = $15.9 per hour
