Question

The following labor standards have been provided by the Rand Company:

• Standard hours per unit: 2
• Standard cost per hour: $12

During the most recent month Rand produced 2,000 units and used 3,900 labor hours at a cost of $47,580.

Calculate the direct labor price variance and the efficiency variance.

Answer 1

Standard time = 2 hours per unit

Standard rate = $12 per hour

Actual output = 2,000 units

Standard time for actual output = Standard time x Actual output

= 2 x 2,000

= 4,000 hours

Actual time = 3,900 hours

Actual cost = $47,580

Actual rate = Actual cost / Actual time

= 47,580/3,900

= $12.2 per hour

Direct labor price variable = Actual time x ( standard rate - Actual rate)

= 3,900 x (12-12.2)

= 3,900 x (-0.20)

= $780 Unfavorable

Direct labor efficiency variance = Standard rate x (Standard time- Actual time)

= 12 x (4,000-3,900)

= 12 x 100

= $1,200 Favorable

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