Question

After evaluating Null Company’s manufacturing process, management decides to establish standards of 2 hours of direct labor per unit of product and $16.30 per hour for the labor rate. During October, the company uses 13,200 hours of direct labor at a $217,800 total cost to produce 6,900 units of product. In November, the company uses 23,300 hours of direct labor at a $386,780 total cost to produce 7,300 units of product. AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate (1) Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months. Classify each variance as favorable or unfavorable.

October
Actual Cost								Standard Cost
November
Actual Cost								Standard Cost

Answer 1

				October
Actual Cost								Standard Cost
AH		AR		AH		SR		SH		SR
13,200		$16.50		13,200		$16.30		13,800		$16.30
	$217,800				$215,160				$224,940
			2640				9780
Direct labor rate variance				2640	Unfavorable
Direct labor efficiency variance				9780	Favorable
Total direct labor variance				7140	Favorable
				November
Actual Cost								Standard Cost
AH		AR		AH		SR		SH		SR
23,300		$16.60		23,300		$16.30		14,600		$16.30
	$386,780				$379,790				$237,980
			6990				141810
Direct labor rate variance				6990	Unfavorable
Direct labor efficiency variance				141810	Unfavorable
Total direct labor variance				148800	Unfavorable