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masya89 [10]
2 years ago
12

Javonte Co. set standards of 2 hours of direct labor per unit of product and $16.10 per hour for the labor rate. During October,

the company uses 13,000 hours of direct labor at a $211,900 total cost to produce 6,700 units of product. In November, the company uses 17,000 hours of direct labor at a $277,950 total cost to produce 7,100 units of product.
AH= Actual Hours
SH =Standard Hours
AR =Actual Rate
SR =Standard Rate

Required:
a. Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months. Classify each variance as favorable or unfavorable.
b. Javonte investigates variances of more than 5% of actual direct labor cost. Which direct labor variances will the company investigate further?
Business
1 answer:
lara [203]2 years ago
5 0

Answer:

Part a.

October Labor Rate Variance   (2600) unfavorable

October Labor Efficiency Variance   6440 favorable

<u><em>Labor Cost Variance  For October  </em></u>3840 favorable

November Labor Rate Variance  (4250) unfavorable

November Labor Efficiency Variance (45080) unfavorable

<u><em>Labor Cost Variance  For November </em></u>49330 unfavorable

Part b.

Direct labor Efficiency variance for November will be investigated further as it varies more than 5 % 0f actual direct labor cost.

Explanation:

<u><em>Direct Labor Rate Variance For October </em></u>

                                           Time *        Rate    =        Amount

Actual Hours Worked       13000 *      16.3 actual              = 211900

<u>Actual Hours Worked      13000 * 16.10 standard         =  209300      </u>

<em><u>Labor Rate Variance                         0.2                           (2600) unfavorable </u></em>

<u />

When actual rate is greater than the standard rate the variance is unfavorable.

<u><em>Direct Labor Rate Variance For November </em></u>

                                           Time *        Rate    =        Amount

Actual Hours Worked       17000 *      16.35 actual              = 277950

<u>Actual Hours Worked      17000 * 16.10 standard         =  273700      </u>

<u>Labor Rate Variance                         0.25                           (4250) unfavorable </u>

<u />

When actual rate is greater than the standard rate the variance is unfavorable.

<u><em></em></u>

<u><em>Direct Labor Efficiency Variance for October</em></u>

                                           Time *        Rate    =        Amount

Actual Hours Worked       13000 *      16.1 standard             = 209300

Standard Hours Allowed      13400 * 16.10 standard         =  215740  

<u>                                             ( 2* 6700)                                                        </u>

<u>Labor Efficiency Variance              400                               6440 favorable </u>

<u />

When actual hours are less than the standard hours allowed the variance is favorable.

<em><u>Direct Labor Efficiency Variance for November</u></em>

                                           Time *        Rate    =        Amount

Actual Hours Worked       17000 *      16.1 standard             = 273700

Standard Hours Allowed      14200 * 16.10 standard         =  228620

<u>                                             ( 2* 7100)                                                        </u>

<u>Labor Efficiency Variance            2800                           (45080) unfavorable </u>

<u />

When actual hours are more than the standard hours allowed the variance is unfavorable.

<u><em>Labor Cost Variance  For October</em></u>

<u><em>Standard hours * standard rate- Actual hours * actual rate</em></u>

13400 * 16.10-  13000 *      16.3

= 215740  -211900

=3840 favorable

<u><em>Labor Cost Variance  For November</em></u>

<u><em>Standard hours * standard rate- Actual hours * actual rate</em></u>

14200 * 16.1 -  17000 * 16.35

= 228620  - 277950

=49330 unfavorable

Direct labor Efficiency variance for November will be investigated further as it varies more than 5 % 0f actual direct labor cost.

45080> 5% of 277950

5% of 277950 = 13897.5

13897.5 > 45080

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