Question

Blue Inc uses a standard costing system. During the last month, the following variance was reported.

Direct labor efficiency variance $1,000 Unfavorable

Blue Inc's standard direct labor rate is $5 per hour and 4 hours of direct labor are allowed per unit produced. During the last month, the company actually used 20% more direct labor hours that should have been used.

1) How many units of product (i.e. actual outputs) were produced during the month?

2) What should be the direct labor rate variance if the actual direct labor costs incurred during the month (AH x AR) were $5,400?

Answer 1

	Direct labour efficiency variance = Standard rate*(standard hours-actual hours)
	$1000 = $5 (standard hours-actual hours)
	200 = (4-actual hours)
	Actual hours = 20% more than standard hours
	Actual hours used per unit = 4 hours*120% = 4.8 hours
	Actual units produced = 200=(4-actual hours(4.8))
Ans	Actual units produced = 200/0.8 = 250 units
	Direct labour rate variance = (Standard rate-Actual rate)*Actual hours
	(AH*AR)= $5,400
	Standard hours for actual output = 250 *4 = 1000 hours
	Standard hours for actual output = 250 *4 = 1000 hours
	Actual rate per hour = $5,400/1200 = $4.5
	Direct labour rate variance = ($5 - $4.5)*1200 hours
Ans	Direct labour rate variance = 600 Favorable