Question

Direct Labor Variances

Bellingham Company produces a product that requires 9 standard direct labor hours per unit at a standard hourly rate of $20.00 per hour. If 2,100 units used 18,500 hours at an hourly rate of $20.40 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

a. Direct labor rate variance	$
b. Direct labor time variance	$
c. Direct labor cost variance	$

Answer 1

Information given in the problem-:

1 unit of product requires 9 standard hours @$20 per hour.

Actual production -: 2,100 units. Actual labor hours -: 18,500 hours @$20.40 per hour

a) Direct labor rate variance is computed by Actual hours X actual rate - Actual hours X standard rate

   =18,500 X 20.40 - 18,500 X 20

   =$377,400 - $370,000

   =$7,400 (Adverse)

b) Direct labor time variance is computed by Standard hours X standard rate - actual hours X standard rate

   =2,100 X 9 X 20 - 18,500 X 20

   =$378,000 - $370,000

   =$8,000 (Favorable)

c) Direct Labor cost variance is computed by Actual hours X actual rate - standard hours X standard rate

=18,500 X 20.4 - 2,100 X 9 X 20

=$377,400 - $378,000

=$600 (Favorable)