Question

The Alpha Company produces toys for national distribution. Standards for a particular toy are: Materials: 12 ounces per unit at 56¢ per ounce. Labor: 2 hours per unit at $2.75 per hour. During the month of December, the company produced 1,000 units. Information for the month follows: Materials: 14,000 ounces were purchased and used at a total cost of $7,140. Labor: 2,500 hours worked at a total cost of $8,000. Calculate the labor rate variance and the labor efficiency variance, respectively. Rate Variance Efficiency Variance

Answer 1

a. Labor rate variance = - $1,125 (adverse )

b. Labor efficiency variance = - $1,375 (adverse)

Step-by-step explanation:

a. Labor rate variance

Actual labor rate = $8,000 / 2,500 = $3.20 per hour

Labor rate variance = Actual hours * (Standard rate - Actual rate) = 2,500 * ($2.75 - $3.20) = - $1,125 adverse

b. Labor efficiency variance

Standard labor hours = Actual units * Standard hour per unit = 1,000 * 2 = 2,000 hours

Labor efficiency variance = (Standard labor hours - Actual labor hours) * Standard rate = (2,000 - 2,500) * $2.75 = - $1,375 (adverse)