Question

Combining the direct labor rate variance with the direct labor efficiency variance is a way to compute the direct labor __________________ variance

Answer 1

Combining the direct labor rate variance with the direct labor efficiency variance gives us the direct labor total variance, indicating the overall performance of labor cost management.

Step-by-step explanation:

Combining the direct labor rate variance with the direct labor efficiency variance is a way to compute the direct labor total variance.

Direct labor rate variance measures the difference between the actual hourly labor cost and the standard or expected labor cost for the actual hours worked, reflecting how well a company manages labor costs. Meanwhile, the direct labor efficiency variance compares the actual number of hours worked to produce a certain number of units with the expected hours to determine efficiency in using labor hours. When these two variances are combined, they reveal the overall performance of labor cost management in relation to both the cost rate and the amount of labor used.

In a production setting, labor is considered a variable cost, meaning it fluctuates with the level of output. More output requires more labor, thus increasing variable costs. This includes both the direct labor employed to produce goods or services and the raw materials used in production.

Answer 2

Combining the direct labor rate variance with the direct labor efficiency variance helps determine the overall direct labor variance.

Step-by-step explanation:

Combining the direct labor rate variance with the direct labor efficiency variance is a way to compute the direct labor ______________ variance.

When calculating the overall direct labor variance, the rate variance and the efficiency variance can be combined to determine the total impact on labor costs. The rate variance measures the difference between the actual wage rate and the standard wage rate, multiplied by the actual hours worked. The efficiency variance, on the other hand, compares the actual hours worked with the standard hours allowed for the production level. By combining these two variances, companies can analyze both the price and productivity aspects of their labor costs.