Question

Use the information below to answer this question and the next question.

Pikus Corporation makes a product that has the following direct labor standards:

Standard direct labor hours ........... 0.2 hours per unit
Standard direct labor rate ............... $15 per hour

In January the company's budgeted production was 3,400 units, but the actual production was 3,500 units. The company used 640 direct labor-hours to produce this output. The actual direct labor cost was $8,960.

The labor efficiency variance for January is:
A. $840 U
B. $900 U
C. $840 F
D. $900 F

Group of answer choices

Using the information provided in the previous question, the labor rate variance for January is:

A. $700 F
B. $640 U
C. $640 F
D. $700 U

Answer 1

Actual direct labor cost = $8,960.

Actual time used = 640 hours

Actual rate = Actual cost of labor used/Actual time used

= 8,960/640

= $14 per hour

Actual production = 3,500 units

Standard direct labor hours = 0.2 hours per unit

Standard direct labor rate = $15 per hour

Standard time for actual output = Standard direct labor hours per unit x Actual production

= 0.2 x 3,500

= 700 hours

Direct labor efficiency variance = Standard rate x (Standard time - Actual time)

= 15 x (700 - 640)

= $900 (Favorable)

The labor efficiency variance for January is: $900 (Favorable)

Correct option is (D)

Direct labor rate variance = Actual time x (Standard rate - Actual rate)

= 640 x (15 - 14)

= $640 (Favorable)

The labor rate variance for January is: $640 (Favorable)

Correct option is (C)