Direct Labor Variances The following data relate to labor cost for production of

Question

Direct Labor Variances The following data relate to labor cost for production of 7,000 cellular telephones: Actual: 4,730 hrs. at $12.7 Standard: 4,660 hrs. at $12.9 a. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Rate variance $ 713,898.9 Favorable Time variance $ 1,226 Unfavorable Total direct labor cost variance $ Favorable b. The employees may have been less-experienced or poorly trained, thereby resulting in a lower labor rate than planned. The lower level of experience or training may have resulted in less efficient performance. Thus, the actual time required was more than standard.

Explanation / Answer

Labor rate variance = AH [AR-SR]

               = 4730 [ 12.7 - 12.9]

                 = -946 F

Labor efficiency variance =SR[AH-SH]

              = 12.9 [4730-4660]

             = 903 U

Total labor variance= -946+903 = - 43 F

b)since labor efficiency variance is unfavorable it means labor employed are less efficiency or poorly trained resulting in actual hours more than standard.

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