Grace Company manufactures candles. The standard direct materials quantity requi

Question

Grace Company manufactures candles. The standard direct materials quantity required to produce one large candle is I pound.it a cost of $5 per pound. Every candle requires 2 direct labor hours at a standard cost of $3 per direct labor hour. During November, 2015, 7,200 large candles were produced using 7,500 pounds costing $45,000. At the end of November, an examination of the labor cost records showed that the company used 15,000 direct labor hours (DLHr) at a COM of S4 per hour. Using the format below, prepare an analysis of the direct labor cost variances.

Explanation / Answer

Direct Labor Rate Variance

= (Actual Rate - Standard Rate) * Actual Hours

= ($4-$3) * 15000

= $15,000 (unfavorable)

Direct Labor Efficiency variance

= (Actual Hours - Standard Hours) * Standard Rate

= (15000-(7200*2)) * 3

= $1800 (unfavorable)

Direct Labor Total Variance

= Direct Labor Rate variance + Direct Labor Efficiency variance

= $16,800

Or

Standard cost for actual production - Actual cost

= (7200*2*3) - (15000*4)

= $16,800

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