Question

Bellingham Company produces a product that requires 2 standard direct labor hours per unit at a standard hourly rate of $20.00 per hour. If 5,200 units used 10,000 hours at an hourly rate of $20.80 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

a. Direct labor rate variance

   = (Actual rate - Standard rate) x Actual Labor Hours
   = ($20.80 - $20.00) x 10,000
   =   $8,000
hence, Direct labor rate variance = $8,000 Unfavorable

b. Direct labor time variance

    = (Actual labor Hours - Standard labor Hours) x Standard rate
    = ( 10,000 - 5200x2 ) x $20.00
    = ( 10,000 - 10,400) x $20.00
    = - $8,000
hence, Direct labor time variance = $8,000 favorable

c. Direct labor cost variance

= Actual Labor Cost - Standard Labor Cost
= (10,000 x $20.80) - ( 5,200 x 2 x 20)
= $208,000 - $208,000
= 0
Direct labor cost variance = 0