Question

Javonte Co. set standards of 2 hours of direct labor per unit of product and $15.80 per hour for the labor rate. During October, the company uses 12,100 hours of direct labor at a $193,600 total cost to produce 6,400 units of product. In November, the company uses 16,100 hours of direct labor at a $258,405 total cost to produce 6,800 units of product. AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate (1) 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. (2) Javonte investigates variances of more than 5% of actual direct labor cost. Which direct labor variances will the company investigate further?

Answer 1

Answer:

October

direct labor rate variance =$2,420 unfavorable

direct labor efficiency variance  =$11,060 favorable

direct labor cost variance  = $ 8,640 favorable

Investigate : direct labor efficiency variance

November

direct labor rate variance = $4,025 unfavorable

direct labor efficiency variance =$ 39,500 favorable

direct labor cost variance  = $35,475 favorable

Investigate : direct labor efficiency variance

Explanation:

October

direct labor rate variance = (Aq × Ap) -  (Aq × Sp)

                                          = (12,100×$16) - (12,100×$15.80)

                                          =$2,420 unfavorable

direct labor efficiency variance = (Aq × Sp) - (Sq × Sp)

                                                    =(12,100 × $15.80) - (6,400×2 ×$15.80)

                                                    =$11,060 favorable

direct labor cost variance = direct labor rate variance + direct labor efficiency variance  

                                           = $2,420 (A) + $11,060 (F)

                                           = $ 8,640 favorable

November

direct labor rate variance = (Aq × Ap) -  (Aq × Sp)

                                          = (16,100×$16.05) - (16,100×$15.80)

                                          = $4,025 unfavorable

direct labor efficiency variance = (Aq × Sp) - (Sq × Sp)

                                                    =(16,100 × $15.80) - (6,800×2 ×$15.80)

                                                    =$ 39,500 favorable

direct labor cost variance = direct labor rate variance + direct labor efficiency variance

                                          = $4,025 (A) + $ 39,500 (F)

                                           = $35,475 favorable