After evaluating Null Company\'s manufacturing process, management decides to es

Question

After evaluating Null Company's manufacturing process, management decides to establish standards of 3 hours of direct labor per unit of product and S15.90 per hour for the labor rate. During October, the company uses 19.000 hours of direct labor at a $305.903 total cost to produce 8.500 units of product. In November, the company uses 22.900 hours of direct labor at a $370.980 total cost to produce 8.900 units of product. Compute the rate variance, the efficiency variance, and the total direct labor cost variance for each of these two months. (Round your "AR" and "SR" answers to 2 decimal places.)

Explanation / Answer

In the Month of October :

Standard direct labour hours per unit = 3 hours

Standard direct labour Cost per hour = $15.90

Actual Hours = 19,000

Actual Cost = 305,900

Standard Hours = 19,500 (6,500 * 3)

Standard Cost = 310,050 (15.9 * 19,500)

Standard Cost at Actual Hours = 302,100 (19,000 * 15.9)

Direct Labour Rate Variance = Actual Cost - Standard Cost of the Actual Hours

= 305,900 - 302,100 = 3,800 Unfavourable

Direct Labour Efficiency Variance = Standard Cost of Actual Hours - Standard Cost

= 302,100 - 310,050 = 7,950 Favourable

Direct Labour Cost Variance = Standard Cost - Actual Cost

= 310,050 - 305,900 = 4,150 Favourable

In the Month of November :

Standard direct labour hours per unit = 3 hours

Standard direct labour Cost per hour = $15.90

Actual Hours = 22,900

Actual Cost = 370,980

Standard Hours = 20,700 (6,900 * 3)

Standard Cost = 329,130 (15.9 * 20,700)

Standard Cost at Actual Hours = 364,110 (22,900 * 15.9)

Direct Labour Rate Variance = Actual Cost - Standard Cost of the Actual Hours

= 370,980 - 364,110 = 6,870 Unfavourable

Direct Labour Efficiency Variance = Standard Cost of Actual Hours - Standard Cost

= 364,110 - 329,130 = 34,980 Unfavourable

Direct Labour Cost Variance = Standard Cost - Actual Cost

= 329,130 - 370,980 = 41,850 Unfavourable

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