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Alexis Company recently completed 11,500 units of its single product, consuming

ID: 2577971 • Letter: A

Question

Alexis Company recently completed 11,500 units of its single product, consuming 35,000 labor hours that cost the firm $588,000. According to manufacturing specifications, each unit should have required 3 hours of labor time at $17.20 per hour.

rev: 10_29_2012

35.

Required information

On the basis of this information, determine Alexis's labor rate variance and labor efficiency variance.
   

  rev: 10_29_2012

Choice A

Choice B

Choice C

Choice D

Choice E

Rate Efficiency   A. $ 13,800 F     $ 8,400 F       B. $ 13,800 F     $ 8,400 U       C. $ 14,000 F     $ 8,600 F       D. $ 14,000 F     $ 8,600 U       E. $ 14,000 U     $ 8,600 U    

Explanation / Answer

Answer:- Labor Rate variance = (Standard rate – Actual rate) * Actual hours

                                       = ($17.2 per hour - $16.8 per hour)*35000 hours   

                                       = $14000 F

            Labor Efficiency variance = (Standard hours- Actual hours)*Standard rate per hour

                                       =(34500 hours – 35000 hours)*$17.2 per hour

                                       = $8600 U

Where:-

Actual rate = Actual cost/total hours

                   =$588000/35000 hours = $16.8 per hour

Standard hours = Standard time per unit * Actual production

                                    = 3 hours per unit*11500 units

                                     =34500 hours

Standard cost =Standard rate hour*stanadard hour per unit*Actual units

                     =$17.2 per hour *3 stanadard hours per unit*11500 units

                     =$593400

Labor cost variance = Standard Cost – Actual cost

                                    =$593400 -$588000

                                    =$5400 U

Labor cost variance = Labor Rate variance+ Labor Efficiency variance

                  $5400 U= $14000 F +$8600 U

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