Question

The following data relate to labor cost for production of 20,000 cellular telephones: Actual: 8,450 hrs. at $22.50 Standard: 8,400 hrs. at $23.00.
A. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance.
B. The employees may have been less-experienced or poorly trained, thereby resulting in a labor rate than planned. The lower level of experience or training may have resulted in efficient performance. Thus, the actual time required was___than standard.

Answer 1

Answer:

A. $4,225 Favorable

$1,150 Unfavorable

$3,075 Favorable

B. Higher; Less

Explanation:

Calculation to determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance.

A. Calculation for Direct Labor rate variance using this formula

Direct Labor rate variance = (Standard rate - Actual rate) * Actual hours

Let plug in the formula

Direct Labor rate variance=($23 - $22.50) * Direct Labor rate variance=8,450

Direct Labor rate variance=$0.50 * $8,450

Direct Labor rate variance=$4,225 Favorable

Calculation for Direct Labor time variance using this formula

Direct Labor time variance = (Standard hours - Actual hours) * Standard rate

Let plug in the formula

Direct Labor time variance=(8,400 - 8,450) * $23

Direct Labor time variance=-50 * $23

Direct Labor time variance= $1,150 Unfavorable

Calculation for Total direct labor cost variance using this formula

Total direct labor cost variance = Labor rate variance + Labor time variance

Let plug in the formula

Total direct labor cost variance=$4,225 + (-$1,150)

Total direct labor cost variance= $3,075 Favorable

B.The employees may have been less-experienced or poorly trained, thereby resulting in a HIGHER labor rate than planned. The lower level of experience or training may have resulted in more efficient performance. Thus, the actual time required was LESS than standard.