Direct Labor Variances The following data relate to labor cost for production of

Question

Direct Labor Variances

The following data relate to labor cost for production of 22,000 cellular telephones:

a. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

b. The employees may have been less-experienced workers who were paid less than more-experienced workers or poorly trained, thereby resulting in a labor rate than planned. The lower level of experience or training may have resulted in efficient performance. Thus, the actual time required was than standard.

Explanation / Answer

a)

Rate variance = act. Hrs. (std. rate - act. rate) = 4,220 hrs. (46-44.50) =-6330 Favorable

Time variance = (std. time - act. time)/Q = (4160-4220)/22000 = 0.00272 unfavorable

Total direct labor variance = std. labor cost - act. Labor cost = (4220*44.50)-(4160*46)

= 187790-191360 = 3570 unfavorable


b)

The employees may have been less-experienced workers who were paid less than more-experienced workers or poorly trained, thereby resulting in a   labor rate than planned. The lower level of experience or training may have resulted inefficient performance. Thus, the actual time required was   more than standard.

These variances occurred because actual values differed from the standard values.

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