Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 p

Question

Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 pillowcases, using 27,300 yards of fabric costing $3.05 per yard and incurring direct labor costs of $22,304 for 3,280 hours of direct labor. The standard cost per pillowcase assumes 1.75 yards of fabric at $3.10 per yard, and 0.20 hours of direct labor at $5.95 per hour.

Compute both the rate variance and efficiency variance for direct labor costs incurred in manufacturing pillowcases in May. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Round your answers to 2 decimal places.)

1)labor rate variance

2)labor efficiency variance

Explanation / Answer

Labor rate variance = Actual labor cost - Standard rate*Actual hours

= $22,304 - $5.95 * 3,280

= $ 22,304 - $19,516

= $ 2,788 (A)

Labor efficiency variance = (Actual hours - Standard hours)*Standard rate

= (3,280 - 15,000*0.20)* $5.95

= $1,666 (A)

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