Question

3) Below is direct labor information for Crate Inc., which produces 8,000 crates: Actual: 7,600 hours at $20/hour Standard: 7,450 hours at $22/hour Instructions: a) Calculate the direct labor rate variance, time variance, and total direct labor cost variance. For each one give the dollar variance and indicate if it is a favorable or unfavorable variance. b) Who should these variances be reported to?

Answer 1

a	Labor rate variance =Actual hours(Standard rate - Actual rate)
	Labor rate variance =7,600 hours($22.00 - $20.00) =$15,200(Favourable)
	Labor time variance =Standard Rate(Actual Hours - Standard Hours)
	Labor time variance =$22.00(7,600 hours - 7,450 hours) =$3,300(Unfavourable)
	Total Labor cost variance =(Standard rate * standard hours) - (Actual rate * Actual hours)
	Total Labor cost variance =($22*7,450 hours) - ($20.00*7,600 hours)
	Total Labor cost variance =$163,900 - $152,000 =$11,900(Favourable)
b	These varainces should be reported to the production/operation manager who is in charge of production