E9-7 Calculating Direct Labor Variances LO 9-4) Parker Plastic, Inc., manufactur
ID: 2581024 • Letter: E
Question
E9-7 Calculating Direct Labor Variances LO 9-4) Parker Plastic, Inc., manufactures plastic mats to use with rolling office chairs. Its standard cost information for last year follows: Standard QuantityStandard Price (Rate) Standard Unit Cost 4.05 0.39 0.66 Direct materials (plastic) Direct labor Variable manufacturing overhead (based on S 11.70 9 sqft.1.30 per sq, ft. 0.3 hr 13.50 per hr 1.30 per hr 0.3 hr direct labor hours) Fixed manufacturing overhead $619,080 ÷ 938,000 units) Parker Plastic had the following actual results for the past year Number of units produced and sold Number of square feet of plastic used Cost of plastic purchased and used Number of labor hours worked Direct labor cost Variable overhead cost Fixed overhead cost 1,000,000 12,800,000 $ 15,360,000 336,000 S 4,200,000 $ 1,700,000 S 393,000 Required Calculate Parker Plastic's direct labor rate and efficiency variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) Direct Labor Rate Varance Direct Labor Efficiency VarianceExplanation / Answer
Solution:
Labor Rate/Price Variance
Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:
Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)
Here, actual time means time for which wage has been paid.
Labor Rate Variance
Actual Hourly Rate (AHR) (Actual labor cost $4,200,000 / Number of hour worked 336,000)
$12.50
Per Hour
Standard Hourly Rate (SHR)
$13.50
Per Hour
Variance or Difference in Rate
$1.00
Per Hour
x Actual Labor Hours worked
336000
Hours
Labor Rate Variance
$336,000
Favorable
Labor Efficiency / Usage Variance
Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.
Labor Efficiency Variance = Standard Rate (Std. hours for actual production – Actual Hours)
Labor Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production
1000000
Units
x Allowed Standard Hours Per Unit
0.3
hours
Total Standard Hours Allowed for actual production (SHAP)
300000
hours
Actual Labor Hours Worked (AH)
336000
hours
Variance or Difference in Quantity (AH - SHAP)
36000
hours
x Standard Hourly Rate (SHR)
$14
per hour
Labor Efficiency Variance
$486,000
Unfavorable
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Labor Rate Variance
Actual Hourly Rate (AHR) (Actual labor cost $4,200,000 / Number of hour worked 336,000)
$12.50
Per Hour
Standard Hourly Rate (SHR)
$13.50
Per Hour
Variance or Difference in Rate
$1.00
Per Hour
x Actual Labor Hours worked
336000
Hours
Labor Rate Variance
$336,000
Favorable
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