Direct Labor Variances Tip Top Corp. produces a product that requires 3 standard

Question

Direct Labor Variances

Tip Top Corp. produces a product that requires 3 standard hours per unit at a standard hourly rate of $16 per hour. If 2,500 units required 7,700 hours at an hourly rate of $15.36 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Explanation / Answer

a) Direct labour rate variance = (16-15.36)7700 = -4928 F

b) Direct labour efficiency variance = (2500*3-7700)*16 = 3200 U

c) Direct labour cost variance = (2500*3*16-7700*15.36) = -1728 F

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