Question

The following labor standards have been established for a particular product:Standard labor hours per unit of output 4.3 hoursStandard labor rate $ 20.10 per hourThe following data pertain to operations concerning the product for the last month:Actual hours worked 6,900 hoursActual total labor cost $ 139,380Actual output 1,500 unitsRequired:a. What is the labor rate variance for the month?b. What is the labor efficiency variance for the month?

Answer 1

Answer: 1. $690 (favorable)

2. $9045 (favorable)

Explanation: These can be computed as follows :-

Labor rate variance = Actual labor cost - (standard rate * actual hours)

= $139,380 - ( $20.1 * 6900 hours )

= $690 (favorable)

.

Labor efficiency variance = ( Actual hours - standard hours ) * (standard rate )

= [6900 hours - (1500 units * 4.3 hours) ] * ($20.1)

= $9045 (favorable)