Direct Labor Rate and Efficiency Variances Junior Company produces one product w

Question

Direct Labor Rate and Efficiency Variances Junior Company produces one product with the following standard costs Direct materials (3 pounds $2.50) $7.50 Direct labor (1.4 hours $12) During the year, Junior produced 10,300 units using 30,000 pounds of material costing $2.45 per pound. Direct labor worked 15,600 hou 16.80 for total wages of $180,000. 1. The direct labor rate variance is s Favorable (choose one). 2. The direct labor hours required for actual production at standard is pounds Favorable (choose one). Graph. The direct labor efficiency variance is s 3. Change the actual direct labor wage rate to $12.60. The direct labor rate variance becomes The direct labor efficiency variance becomes 4. Change the actual direct labor worked from 15,000 to 14,000. The direct labor efficiency variance becomes The direct labor rate variance becomes Continue to change the actual direct labor hours worked used and the actual wage rate to determine how the direct labor rate variance and the direct labor efficiency variance

Explanation / Answer

Solution -1:

It should be noted that Direct labor rate variance is calculated with the use of following formulae:

= (Actual Rate-Std Rate)*Actual Labour hour

= Actual Rate * Actual Labour hour - Std Rate*Actual Labour hour

= 180,000 - 12*15,600= 7,200 Favourable

Since company has paid less than the standard rate, labor rate variance will be positive.

Solution-2:

Actual Production= 10,300 units

Standard Direct Labor hour required per unit= 1.4

Standard labor hours required in toal= 10,300 * 1.4= 14,420 hours

Direct Labor efficieny variance is computed by:

= (Actual hours used- Standard hours used)*Standard rate

= (15,600-14,420) * 12= 14,160 Unfavourable

Solution-3:

Changing the actual direct labor wage rate to $12.60

Direct Labor rate Variance = (Actual Rate-Std Rate)*Actual Labour hour

(12.60-12)*15,600= $9,360 Unfavourable

Direct Labor Effieciecy Variance=

(Actual hours used- Standard hours used)*Standard rate

= (15600-14420)*12.6= 14,868 Unfavourable

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