Question

The following labor standards have been established for a particular product: Standard labor hours per unit of output 2.8 hours Standard labor rate $11.50 per hour The following data pertain to operations concerning the product for the last month: Actual hours worked 6,900 hours Actual total labor cost $80,385 Actual output 2,300 units Required: a. What is the labor rate variance for the month? b. What is the labor efficiency variance for the month? Solution (Please show work/calculations): a. Labor rate variance = b. Labor efficiency variance =

Answer 1

Actual labor rate per hour = Actual total labor cost / Actual hours worked = $80,385 / 6,900 hours = $11.65

Labor rate variance = ( Standard rate - Actual rate ) * Actual hours = ( $11.5 - $11.65 ) * 6,900 hours = $1,035 Unfavorable

As the actual rate is higher than the standard rate, the labor rate variance is unfavorable.

Standard labor hours for actual output = Actual output * Standard hours per unit = 2,300 units * 2.8 hours = 6,440 hours

Labor efficiency variance = ( Standard hours - Actual hours ) * Standard rate = ( 6,440 hours - 6,900 hours ) * $11.5 = $5,290 Unfavorable

As the actual hours are higher than the standard hours, the labor efficiency variance is unfavorable.