Creative Productions manufactured and sold 800 products at $10,000 each during t

Question

Creative Productions manufactured and sold 800 products at $10,000 each during the past year. At the beginning of the year, production had been set at 1,000 products, and direct materials standards had been set at 10 pounds of direct materials at $12 per pound for each product produced. During the year, the company purchased and used 7,900 pounds of direct materials with a cost of $12.02 per pound.

At the beginning of last year, Creative Productions set direct labor standards of 2 hours at $25 per hour for each product produced. During the year, 1,700 direct labor hours were actually worked at an average cost of $26 per hour.

Calculate the company's direct labor rate and efficiency variances for the year.

Direct labor rate variance$ ?

Direct labor efficiency variance$ ?

Explanation / Answer

Actual labor hours = 1700 / 800      2.125 Actual rate $ 26.00 Actual cost $ 55.25 Standard labor hours $    2.00 Standard rate      25.00 Standard Cost $ 50.00 Labor rate variance = Actual cost - Standard Cost 5.25 Unfavorable Labor efficiency variance (Actual hours - Standard hours) x Standard rate Actual hours 1700 Standard hours = 800 x 2 1600 Standard rate 2 (1700 - 1600) x 2 200

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