Question

During January, Ajax Co. Incurs 1,850 hours of direct labor at an hourly cost of $11.80 in producing 1,000 units of its finished product. Ajax standard labor cost per unit of output is $22 (2 hours x $11.00). Compute the total, price, and quantity labor variances for Ajax Co. For January. Identify whether the variance is favorable or unfavorable?

Answer 1

Std rate per hour: 11.00

Std hours = 1000*2 =2000

Actual hours = 1850

Actual rate = 11.80

Labor cost variance = Std cost - Actual cost

Labor cost variance = (2000*11) - (1850*11.80)

Labor cost variance = 170 Unfavorable

Labor rate variance = Actual hrs (Std rate - Actual rate)

Labor rate variance = 1850 *(11-11.80)

Labor rate variance = 1480 Unfavorable

Labor qty variance = Std rate (Std hrs-Actual hrs)

Labor qty variance = 11 (2000-1850)

Labor qty variance = 1650 Favorable.