Question

Corporation has many production plants across the midwestern United States. A newly opened plant, the Bellingham plant, produces and sells one product. The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on direct labor hours, are as follows. Manufacturing costs (per unit based on expected activity of 24,000 units or 36,000 direct labor hours): Direct materials (2 pounds at $20) $ 40.00 Direct labor (1.5 hours at $90) 135.00 Variable overhead (1.5 hours at $20) 30.00 Fixed overhead (1.5 hours at $30) 45.00 Standard cost per unit $ 250.00 Budgeted selling and administrative costs: Variable $ 5 per unit Fixed $ 1,800,000 Expected sales activity: 20,000 units at $425.00 per unit Desired ending inventories: 10% of sales Assume this is the first year of operations for the Bellingham plant. During the year, the company had the following activity. Units produced 23,000 Units sold 21,500 Unit selling price $ 420 Direct labor hours worked 34,000 Direct labor costs $ 3,094,000 Direct materials purchased 50,000 pounds Direct materials costs $ 1,000,000 Direct materials used 50,000 pounds Actual fixed overhead $ 1,080,000 Actual variable overhead $ 620,000 Actual selling and administrative costs $ 2,000,000 In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold. c. Find the direct labor variances. Indicate if they

Answer 1

Direct labor rate variance= $34,000 unfvorable

Direct labor time (efficiency) variance= $45,000 favorable

Step-by-step explanation:

Giving the following information:

Standard:

Expected activity of 24,000 units or 36,000 direct labor hours

Direct labor (1.5 hours at $90)

Actual:

Units produced 23,000

Direct labor hours worked 34,000

Direct labor costs $ 3,094,000

To calculate the direct labor rate and efficiency variance, we need to use the following formulas:

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

Actual rate= 3,094,000/34,000= $91 per hour

Direct labor rate variance= (90 - 91)*34,000

Direct labor rate variance= $34,000 unfvorable

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

Direct labor time (efficiency) variance= (23,000*1.5 - 34,000)*90

Direct labor time (efficiency) variance= $45,000 favorable