The standard labor cost for a unit of product is $20 per unit, based on 2 hours

ID: 2372635 • Letter: T

Question

The standard labor cost for a unit of product

is $20 per unit, based on 2 hours of labor per unit at an hourly

rate of $10. During August 2007, 4,000

units were manufactured at a total labor cost of $80,580,

representing 7,900 hours at a rate of 10.20 per

hour.

The labor rate variance for the month is:

The labor efficiency variance is:

A company has established labor standards

based on goals that could be attained only under perfect operating

conditions. These standards are referred

to as

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LABOUR RATE VARIANCE = ACTUAL DIRECT LABOUR HOURS X (ACTUAL RATE PER HOUR - STANDARD RATE PER HOUR)

=7900X(10.20-10.00)

=7900X0.20

=$1580 UNFAVOURABLE

LABOUR EFFICIENCY VARIANCE = (STANDARD HOURS - ACTUAL HOURS) X STANDARD RATE

=(8000-7900)X10

=100X10

=$1000 FAVORABLE

THE LABOR STANDARDS ARE REFERRED TO AS PERFORMANCE STANDARDS

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