Question

The standard direct labor cost per unit for a company was $39 (= $26 per hour × 1.5 hours per unit). During the period, actual direct labor costs amounted to $266,400, 10,400 labor-hours were worked, and 5,800 units were produced.

Required:

Compute the direct labor price and efficiency variances for the period. (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

The direct labor efficiency variance= Standard Rate * ( Actual Hours - Standard Hours)

= $ 26 * [ 10,400 Hours - ( 1.5 Hours * 5,800 Units)]

= $ 270,400- 226,200

= $ 44,200

Since the Actual Hours is more than the Standard Hours , the Variance is Unfavorable

Hence the correct answer is $ 44,200 U

The  labor rate variance = Actual Hours * ( Actual rate - Standard Rate)

=( Actual Hours * Actual rate ) - ( Actual Hours * Standard Rate)

= $ 266,400 - (10,400 Hours * $ 26)

= $ 266,400- $ 270,400

= - $ 4,000

Since the Actual Rate is less than the Standard Rate, the Variance is favorable

Hence the correct answer is $ 4,000 F