Do It! Review 11-3 The standard cost of product 5252 includes 1.50 hours of dire

Question

Do It! Review 11-3

The standard cost of product 5252 includes 1.50 hours of direct labor at $14.00 per hour. The predetermined overhead rate is $22.00 per direct labor hour. During July, the company incurred 3,800 hours of direct labor at an average rate of $14.37 per hour and $80,400 of manufacturing overhead costs. It produced 2,400 units.

(a) Compute the total, price, and quantity variances for labor.

(b) Compute the total overhead variance.

Total labor variance $ FavorableNeither favorable nor unfavorableUnfavorable Labor price variance $ Neither favorable nor unfavorableUnfavorableFavorable Labor quantity variance $ FavorableNeither favorable nor unfavorableUnfavorable

Explanation / Answer

From the given Information:

                     Standard rate for labour hour (SR)= $ 14.00 per hour

                     Actual rate of labour hour (AR) = $ 14.37 per hour

                    Actual number of labour hours (AH) = 3800 hours

      Pre-determined standard hours at actual production of 2400 units (SH)= 2400* 1.50 = 3600 standard hours

Now,

         Labor quantity variance = (SR*SH) - (SR*AH) = (14*3600) - (14*3800) = 2800 Unfavourable.

         Labor Price Variance = ( SR*AH) - (AR*AH) = (14*3800) - (14.37*3800) = 1406 Unfavourable.

         Total Labor variance = (SR*SH) - (AR*AH) =   (14*3600) - (14.37*3800) = 4206 Unfavourable.

(B)

        Given Standard overhead rate (SR) = $ 22.00 per labor hour

                 Standard labor hours (SH)= 3600

                 Actual overhead rate (AR)=   $ 80,400/3800 = $ 21.15

                Actual labour hours (AH) =   3800

         Total Overhead variance = (SR*SH) - (AR*AH) = (22*3600) - (21.15*3800) = 1170 Unfavourable.

                 

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