Question

Earl Company's direct labor costs for the month of January follow: Actual direct labor hours 18,000 Standard direct labor hours 19,000 Direct labor rate variance--unfavorable $ 2,160 Total payroll $117,000 What was Earl's direct labor efficiency variance?

Answer 1

Direct labor efficiency variance= 6,380 favorable

Step-by-step explanation:

Giving the following information:

Actual direct labor hours= 18,000

Standard direct labor hours= 19,000

Direct labor rate variance= unfavorable $ 2,160

Total payroll $117,000

First, we need to calculate the standard rate using the direct labor rate variance formula:

Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity

-2,160= (SR - 117,000/18,000)* 18,000

-2,160= (SR - 6.5)*18,000

-0.12= SR - 6.5

6.38= Standard rate

Now, we can calculate the direct labor efficiency variance

Direct labor efficiency variance= (Standard Quantity - Actual Quantity)*standard rate

Direct labor efficiency variance= (19,000 - 18,000)*6.38

Direct labor efficiency variance= 6,380 favorable