Acme Company’s production budget for August is 17,700 units and includes the fol

Question

Acme Company’s production budget for August is 17,700 units and includes the following component unit costs: direct materials, $6.00; direct labor, $10.20; variable overhead, $6.20. Budgeted fixed overhead is $34,000. Actual production in August was 18,630 units, actual unit component costs incurred during August include direct materials, $8.00; direct labor, $9.60; variable overhead, $7.00. Actual fixed overhead was $35,700, the standard direct labor cost per unit consists of 0.5 hour of labor time at $20.4 per hour. During August, $178,848 of actual labor cost was incurred for 8,280 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

SRSH                                          SRAH                          ARAH

20.4 x 9,315                           20.4 x 8,280                     178,848

= 190,026                               =168,912                             

SR = Standard rate per labor hour = $ 20.4

SH = Standard hour required for actual production

      = 0.5 x 18,630 = 9,315

AR = Actual rate per labor hour

AH = Actual hours worked

                       = 168,912- 178,848 =$ (9936)                   [U]

                        = 190,026 – 168,912 =$ 21,114               [F]

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