Direct Labor Variances The following data relate to labor cost for production of 7,000 cellular telephones: Actual: 4,730 hrs. at $12.7 Standard: 4,660 hrs. at $12.9 a. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Rate variance $ 713,898.9 Favorable Time variance $ 1,226 Unfavorable Total direct labor cost variance $ Favorable b. The employees may have been less-experienced or poorly trained, thereby resulting in a lower labor rate than planned. The lower level of experience or training may have resulted in less efficient performance. Thus, the actual time required was more than standard.
Labor rate variance = AH [AR-SR]
= 4730 [ 12.7 - 12.9]
= -946 F
Labor efficiency variance =SR[AH-SH]
= 12.9 [4730-4660]
= 903 U
Total labor variance= -946+903 = - 43 F
b)since labor efficiency variance is unfavorable it means labor employed are less efficiency or poorly trained resulting in actual hours more than standard.
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