Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $16.00
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Answer:
Direct labor rate variance = (SR - AR) AH
October = ($15 - $15.20) 16,250 = - $3,250 Unfavorable
November = ($15 - $15.25) 22,000 = - $5,500 Unfavorable
Direct Labor Efficiency Variance = (SH - AH) SR
October = (16,800 - 16,250) $15 = 8,250 Favorable
November = (18,000 - 22,000) $15 = - $60,000 Unfavorable
Direct Labor Cost Variance = Standard Cost - Actual Cost
October = $252,000 - $247,000 = $5,000 Favorable
November = $270,000 - $335,500 = - $65,500 Unfavorable
Explanation:
Computing variances for each month
Particulars October November Equation
Total units produced 5,600 units 6,000 units (a)
Standard hour per unit 3 hours 3 hours (b)
Total standard hour SH 16,800 18,000 (c) = (a)*(b)
Total standard cost
of labor @ $15 SR per hour $252,000 $270,000 (d) = (c) * 15
Actual hours used AH 16,250 22,000 (e)
Actual cost $247,000 $335,500 (f)
Actual Rate per hour AR $15.20 $15.25 (g) = (f)/(e)
Using the above information we have
Direct labor rate variance = (SR - AR) AH
October = ($15 - $15.20) 16,250 = - $3,250 Unfavorable
November = ($15 - $15.25) 22,000 = - $5,500 Unfavorable
Direct Labor Efficiency Variance = (SH - AH) SR
October = (16,800 - 16,250) $15 = 8,250 Favorable
November = (18,000 - 22,000) $15 = - $60,000 Unfavorable
Direct Labor Cost Variance = Standard Cost - Actual Cost
October = $252,000 - $247,000 = $5,000 Favorable
November = $270,000 - $335,500 = - $65,500 Unfavorable