Question

The records of Norton, Inc. show the following for July.

Standard labor-hours allowed per unit of output		1.6
Standard variable overhead rate per standard direct labor-hour	$	31
Good units produced		60,000
Actual direct labor-hours worked		98,000
Actual total direct labor	$	2,178,000
Direct labor efficiency variance	$	41,000	U
Actual variable overhead	$	2,840,000

Required:

Compute the direct labor and variable overhead price and efficiency variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Direct Labor
Price variance
efficiency variance
variable overhead
Price variance
efficiency variance

Answer 1

Solution

It is given that direct labor efficiency variance is $41000 which is unfavorable

Direct labor efficiency variance= ( standard hours - actual hours)*standard rate

41000 =(60000*1.6-98000)*standard rate

41000 =(2000) * standard rate

41000/2000 = standard rate

Standard rate = 20.5

Direct labor price variance =( standard rate* actual hour worked) - total actual direct labor

=(20.5*98000)- 2178000

=169000 (U)

Variable overhead efficiency variance =( standard hour - actual hours)* standard variable overhead

=(96000-98000)*31

=62000(U)

Variable overhead price variance =( actual hours * standard variable overhead rate) - actual variable

=(98000*31)-2840000

=198000(F)