Assume that Nortel manufactures specialty electronic circuitry through a unique

Question

Assume that Nortel manufactures specialty electronic circuitry through a unique photoelectronic process. One of the primary products, Model ZX40, has a standard labor time of 0.5 hour and a standard labor rate of $12.50 per hour. During February, the following activities pertaining to direct labor for ZX40 were recorded:

(a) Determine the labor rate variance.


(b) Determine the labor efficiency variance.


(c) Determine the total flexible budget labor cost variance.

Explanation / Answer

a (Actual rate - Standard rate) x Actual hours worked = Labor rate variance

   (7.083 - 12.5/2)*2230 = 3998.4 unfavorable

b (Actual hours - Standard hours) x Standard rate = Labor efficiency variance

(2230 - 4800/2)*12.50 = 2125

Determine the total flexible budget labor cost variance.

Units of good output achieved * Input allowed per unit of output* Standard unit price of input

(4800*.5)*12.5/2 = 15000

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