Acme Company’s production budget for August is 18,900 units and includes the fol

Question

Acme Company’s production budget for August is 18,900 units and includes the following component unit costs: direct materials, $7.20; direct labor, $11.40; variable overhead, $5.40. Budgeted fixed overhead is $46,000. Actual production in August was 21,840 units, actual unit component costs incurred during August include direct materials, $9.60; direct labor, $10.80; variable overhead, $6.20. Actual fixed overhead was $48,900, the standard direct labor cost per unit consists of 0.5 hour of labor time at $22.8 per hour. During August, $235,872 of actual labor cost was incurred for 9,360 direct labor hours. Required: Calculate the labor rate variance and labor efficiency variance for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Explanation / Answer

Actuals Standard Production 21840 Labour cost 235872 248976 (0.5*21840*22.8) Labour hours(Total) 9360 10920 (0.5*21840) Lab.cost/hr 25.2 22.8 (Given) Lab. Hrs. /unit 0.428571 0.5 (Given) Labour rate variance= Actual labour hrs. (Std. labour rate-Actual labour rate)                                                 =9360(22.8-25.2)= -22464 (UF) Labour Efficiency variance= Std. Labour rate/hr. (Std. labour hrs. for actual prodn.-Actual labour hrs.)                                                            =22.8(10920-9360)= 35568 (F)

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