Lewis Company’s standard labor cost of producing one unit of Product DD is 3.6 h

Question

Lewis Company’s standard labor cost of producing one unit of Product DD is 3.6 hours at the rate of $13.1 per hour. During August, 40,600 hours of labor are incurred at a cost of $13.25 per hour to produce 11,200 units of Product DD.

(a)

Compute the total labor variance.

(Unfavorable/Neither favorable nor unfavorable/Favorable)

(b)

Compute the labor price and quantity variances.

(Favorable/Unfavorable/Neither favorable nor unfavorable)

(c)

Compute the labor price and quantity variances, assuming the standard is 3.9 hours of direct labor at $13.35 per hour.

(Unfavorable/Neither favorable nor unfavorable/Favorable)

Explanation / Answer

1) Total labor variance = Standard labor cost - Actual labor cost

= ( 11200*3.6*13.1)-(40600*13.25)

= 9758 unfavourable

2) Labor price variance = ( Standard rate - Actual rate ) * Actual Hours worked

= ( 13.10-13.25)*40600 i.e 6090 Unfavourable

Labor Efficiency Variance = ( Standard hours for actual output - Actual hours ) * Standard rate

= ((11200*3.6)-40600)*13.25

= ( 40320-40600)*13.25 i.e 3710 Unfavourable

3) Labor price variance = ( 13.35-13.25)*40600

= 4060 unfavourable

Labour efficiency variance = ( Standard hours for actual output - Actual hours ) * Standard rate

= ( 11200*3.9)-40600 )*13.35 i.e 40810 favourable

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