16. After evaluating Null Company’s manufacturing process, management decides to

Question

16. After evaluating Null Company’s manufacturing process, management decides to establish standards of 2 hours of direct labor per unit of product and $15.10 per hour for the labor rate. During October, the company uses 11,000 hours of direct labor at a $168,300 total cost to produce 5,700 units of product. In November, the company uses 22,100 hours of direct labor at a $340,340 total cost to produce 6,100 units of product.

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

(1) Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months. Classify each variance as favorable or unfavorable.

October Actual Cost Standard Cost November Actual Cost Standard Cost

Explanation / Answer

(1) Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months. Classify each variance as favorable or unfavorable.

October Actual Cost Standard Cost AH AR AH*AR AH SR AH*SR SH SR SH*SR 11000 15.30 168300 11000 15.10 166100 11400 15.10 172140 2200 6040 Labour rate variance 2200 Unfavourable Labour efficiency variance 6040 Favourable Total labour cost variance 3840 Favourable November Actual Cost Standard Cost AH AR AH*AR AH SR AH*SR SH SR SH*SR 22100 15.40 340340 22100 15.10 333710 12200 15.10 184220 6630 149490 Labour rate variance 6630 Unfavourable Labour efficiency variance 149490 Unfavourable Total labour cost variance 156120 Unfavourable

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