Question

Four Seasons Industries has established direct labor performance standards for its maintenance and repair shop. However, some of the labor records were destroyed during a recent fire. The actual hours worked during August were 2,250, and the total direct labor budget variance was $1,170 unfavorable. The standard labor rate was $14.40 per hour, but recent resignations allowed the firm to hire lower-paid replacement workers for some jobs, and this produced a favorable rate variance of $3,150 for August.

Required
a. Calculate the actual direct labor rate paid per hour during August. (Do not round intermediate calculations. Round your answer to 1 decimal place.) ual direct labor rate per hour
b. Calculate the dollar amount of the direct labor efficiency variance for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). t labor efficiency
c. Calculate the standard direct labor hours allowed for the actual level of activity during August. (Hint: Use the formula for the efficiency variance and solve for the missing information.) Standard direct labor hours

Answer 1

a. Actual labor Rate:

(AR-SR)*Actual hours = Labor rate variance

Labor rate variance/Actual hours = AR-SR

AR = (Labor rate variance/Actual hours) + SR

Actual rate= (-3,150/2,250) + 14.4

Actual rate = -1.4 + 14.4

Actual rate = 13 per hour

Note: Labor rate variance is -3,150, Standard rate is 14.4 per hour and Actual hours is 2,250.

b. Direct labour efficiency variance = Total direct labour budget variance - Direct labour rate variance

Direct labour efficiency variance = $1,170 - (-$3,150)

Direct labour efficiency variance = $4,320 Unfavourable

c. Direct Labour efficiency variance = (AH-SH)*SR

4,320 = (2,250 - SH)*14.4

2,250 - Standard hours = 4,320/14.4

2,250 - Standard hours = 300

Standard hours = 2,250 - 300

Standard hours = 1,950