Direct Labor Rate and Efficiency Variances For the past two years, NE Company\'s
ID: 2523071 • Letter: D
Question
Direct Labor Rate and Efficiency Variances
For the past two years, NE Company's best-selling product has been a titanium engine block. Standard direct labor hours per block are 2.0 hours. All direct labor employees are paid $24 per hour. During July, NE produced 16,000 blocks. Actual direct labor hours and costs for the month were 31,000 hours and $775,000, respectively.
1. Compute the direct labor rate variance for blocks during July. 2. Using the same data, compute the direct labor efficiency variance for engine blocks during July. Check your answer, assuming that the total direct labor cost variance is $7,000 (U). Favorable or Unfavorable.
Explanation / Answer
Answer
Actual DATA for
16000
blocks
Quantity (AQ)
Rate (AR)
Actual Cost
Direct labor
31000
$ 25.00 [775000/31000]
$ 7,75,000.00
Standard DATA for
16000
blocks
Quantity (SQ)
Rate (SR)
Standard Cost
Direct labor
32000 [16000 x 2]
$ 24.00
$ 7,68,000.00
Labor Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 24.00
-
$ 25.00
)
x
31000
-31000
Variance
31000
Unfavourable-U
Labour Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
32000
-
31000
)
x
$ 24.00
24000
Variance
24000
Favourable-F
Labor Spending Variance [For checking the answer]
(
Standard Cost
-
Actual Cost
)
(
$ 7,68,000.00
-
$ 7,75,000.00
)
-7000
Variance
7000
Unfavourable-U
Actual DATA for
16000
blocks
Quantity (AQ)
Rate (AR)
Actual Cost
Direct labor
31000
$ 25.00 [775000/31000]
$ 7,75,000.00
Standard DATA for
16000
blocks
Quantity (SQ)
Rate (SR)
Standard Cost
Direct labor
32000 [16000 x 2]
$ 24.00
$ 7,68,000.00
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