Question

Lewis Company's standard labor cost of producing one unit of Product DD is 3.40 hours at the rate of $10.50 per hour. During August, 42,900 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 $ UnfavorableFavorableNeither favorable nor unfavorable

Answer 1

The total labor variance for Lewis Company is calculated by comparing the standard labor cost to the actual cost incurred. The standard cost for producing 10,600 units of Product DD is $378,420, while the actual cost incurred is $566,280, resulting in an unfavorable variance of $187,860.

Step-by-step explanation:

To calculate the total labor variance, we need to compare the standard cost of labor to the actual cost incurred. The standard cost is the amount the company expects to pay for the labor needed to produce a certain number of units, while the actual cost is what the company actually paid for labor during production.

The standard labor cost for producing one unit of Product DD is calculated as follows:
3.40 hours/unit × $10.50/hour = $35.70/unit. For 10,600 units, the total standard labor cost would be 10,600 units × $35.70/unit = $378,420.

The actual labor cost incurred in August is: 42,900 hours × $13.20/hour = $566,280.

Now, the total labor variance is found by subtracting the standard cost from the actual cost incurred: $566,280 - $378,420 = $187,860.

Since the actual cost is higher than the standard cost, the variance is unfavorable. Therefore, the total labor variance is $187,860 unfavorable.