Lewis Company’s standard labor cost of producing one unit of Product DD is 3.9 h

Question

Lewis Company’s standard labor cost of producing one unit of Product DD is 3.9 hours at the rate of $13.0 per hour. During August, 42,000 hours of labor are incurred at a cost of $13.20 per hour to produce 10,600 units of Product DD. (a) Compute the total labor variance. Total labor variance $ (b) Compute the labor price and quantity variances. Labor price variance $ Labor quantity variance $ (c) Compute the labor price and quantity variances, assuming the standard is 4.2 hours of direct labor at $13.40 per hour. Labor price variance $ Labor quantity variance

Explanation / Answer

Given Information

Actual Hours = 42000

Actual rate = $13.20

Standard labour hrs for 1 unit = 3.9

Number of unit produce = 10600

Standard Rate = $13.00

(a) Total Labour variance is calculated below :

Total Labour Variance = (Actual Hours * Actual rate) - (Standard Hours * Standard Rate)

=   (42,000 * $13.20) - ( 41340* $13.00) [For Calculation of Std Hrs see note]

= $554400 - $537420

= $16980 Unfavourable

Note : [ Standard Hours = Standard Hours for 1 unit * Number of unit produce ]

[ Standard Hours = 3.90 *10600 ]

[ Standard Hours = 41340 ]

(b) Labour Price Variance and Labour Quantity Variance is calculated below :

(i) Labour Price variance = (Actual Hours * Actual rate) - (Actual Hours* Standard Rate)

= (42000 * $13.20) - (42000 * $13.00)

= $554400 - $546000

= $8,400 Unfavourable

(ii) Labour Quantity variance = (Actual Hours * Standard Rate) - (Standard hours * Standard Rate)

= (42000 * 13.00) - (41340 *13.00)

= $5,46,000 - $537420

= $8580 Unfavorable  

(c) Labour Price Variance and Labour Quantity Variance assuming

Standard Hours per unit = 4.20

Standard Rate = $13.40

is calculated below :

(i) Labour Price variance = (Actual Hours * Actual rate) - (Actual Hours* Standard Rate) = (42000 * $13.20) - (42000 * $13.40)

= $554400 - $562800

= $8400 Favourable

(ii) Labour Quantity variance = (Actual Hours * Standard Rate) - (Standard Hours * Standard Rate)

= (42000 * 13.40) - (44520 *13.40) [For Calculation of Std Hrs see note]

= $562800 - $596568

= $33768 Favourable

Note : [ Standard Hours = Standard Hours for 1 unit * Number of unit produce ]

[ Standard Hours = 4.20 *10600 ]

[ Standard Hours = 44520 ]

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