KL Corp. estimates its standards for production of one unit of its produ ct as f

Question

KL Corp. estimates its standards for production of one unit of its produ ct as follows: Direct Materials 2 lb. At $3/lb. Direct Labor 5 hours at $15/hour Variable OH $4/DL hour Fixed OH $2/DL hour Fixed OH was calculated based on a normal production level of 50,000 hours or $100,000 budgeted fixed overhead per period. During the month of February, KL Corp. had the following actual production results: Production 11,000 units Materials Purchased 30,000 lbs. at $5.75/lb Materials Used 23,500 lbs. Direct Labor 54,000 hours at $864,000 Variable OH $225,000 Fixed OH $100,000 Using the above information, calculate 4. Labor rate variance, 5. Labor Efficiency Variance

Explanation / Answer

**AR = 864,000 / 54000 = 16 Per hour

Labor rate variance = AH (AR -SR)

                            = 54000 ( 16 - 15)

                            = 54000 * 1

                            = 54000 (U)

2)Labor efficiency variance = SR( AH -SH)

                                     = 15[ 54000 - (11000 * 5) ]

                                     = 15 [54000 - 55000]

                                    = 15 * -1000

                                    = $ - 15,000 (F)

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