Question

Bellingham company produces a product that requires 4 standard direct labor hours per unit at a standard hourly rate of $20 per hour. if 15,000 units used 61,800 hours at an hourly rate of $19.85 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Answer 1

The Bellingham company had a favorable rate variance of $9,270 due to a lower actual hourly rate than the standard. However, there was an unfavorable time variance of $36,000 because actual hours exceeded standard hours, resulting in an overall unfavorable cost variance of $26,730.

Step-by-step explanation:

The Bellingham company's direct labor variances can be calculated as follows:

• Standard Hours for Actual Production = Standard Hours per Unit * Actual Units Produced = 4 hours/unit * 15,000 units = 60,000 hours.
• Rate Variance = (Standard Rate – Actual Rate) * Actual Hours = ($20/hour - $19.85/hour) * 61,800 hours = $9,270 Favorable.
• Time Variance = (Standard Hours for Actual Production – Actual Hours) * Standard Rate = (60,000 hours - 61,800 hours) * $20/hour = -$36,000 Unfavorable.
• Cost Variance = Rate Variance + Time Variance = $9,270 + (-$36,000) = -$26,730 Unfavorable.

Overall, the company experienced a favorable rate variance indicating they paid less per hour than anticipated, but an unfavorable time variance because they took more hours than the standard allowed. This lead to an overall unfavorable cost variance.