Question

At Lawn, the standard quantity of labor is 26 hours per refrigeration unit. The standard wage rate is $35. In July, the company produced 77 refrigeration units and incurred 2,070 labor hours at a cost of $62,100.

Calculate the labor rate variance and the labor efficiency variance. Indicate whether the variances are favorable or unfavorable. (Round intermediate calculations to 2 decimal places, e.g. 14.37 and final answers to 0 decimal places, e.g. 125. Enter all variances as a positive number.)

Labor Rate Variance $

FavorableNeither Unfavorable nor FavorableUnfavorable

Labor Efficiency Variance $

Neither Unfavorable nor FavorableFavorableUnfavorable

Answer 1

Calculation of Labour Rate variance

Labour Rate variance   = ( Standard Rate (-)Actual rate) xActual Hours                                               =   ($35 (-) $30) x 2,070                                              = $10,350

Labour Rate variance   =   $10,350 Favourable

*Actual labor rate   =    $62,100 / 2,070 =   $30

Calculation of Labour Efficiency variance

Labour Efficiency variance = ( Standard Hours (-)Actual Hours) x standard Rate                                                       =   (2,002 (-) 2,070) x $35                                                       = ($2,380) UnFavourable

Labour Efficiency variance   =    ($2,380) UnFavourable

* Standard Hours   = 77 * 26 Hours = 2,002