Question

Lamp Company produces lamps that require 2 standard hours per unit at a standard hourly rate of $20.60 per hour. Production of 6,700 units required 13,130 hours at an hourly rate of $20.00 per hour.

What is the direct labor (a) rate variance, (b) time variance, and (c) total cost variance? Enter favorable variances as negative numbers.

a. Direct labor rate variance	$
b. Direct labor time variance	$
c. Total direct labor cost variance

Determine also if favorable or not favorable

Answer 1

1. Direct labor rate variance:

Direct Labor rate variance = (Standard Rate - Actual Rate) x Actual hrs

= (20.6 - 20) x 13,130

= - $ 7878 Favorable

2. Labor efficiency variance:

Direct Labor efficiency variance = (Standard hrs - Actual Hrs) x Standard Rate

= (2 x 6700 - 13130) x 20.6

= - $5562 Favorable

3. Direct Labor cost variance

Direct Labor cost variance = (Standard hrs x Standard Rate - Actual hrs x Actual Rate)

= (13400 x 20.6 – 13130 x 20)

= - $13440 Favorable