Question

# Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 pillowcases, using 27,900 yards...

Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 pillowcases, using 27,900 yards of fabric costing \$3.05 per yard and incurring direct labor costs of \$21,910 for 3,130 hours of direct labor. The standard cost per pillowcase assumes 1.75 yards of fabric at \$3.10 per yard, and 0.20 hours of direct labor at \$5.95 per hour.

 b. Compute both the rate variance and efficiency variance for direct labor costs incurred in manufacturing pillowcases in May. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Round your answers to 2 decimal places.) Labor rate varience: \$____________ Labor efficiency variance: \$______________

Computation of labor rate variance and labor efficiency variance:

Labor rate variance = (standard rate - actual rate)*actual hours

Standard rate = \$5.95

Actual rate = \$21910/3130 =\$7

Actual hours = 3130

Labor rate variance = (\$5.95-7.00)*3130 = 3286.5 Unfavorable

Labor efficiency variance = (standard hours - actual hours)*Standard rate

Standard hours = 15000*0.20 = 3000 hours

Actual hours = 3130

Standard rate = \$5.95

Labor efficiency variance= (3000-3130)*\$5.95 =\$773.5 Unfavorable