Question

Jake’s Cheese Company produces gourmet cheese for resale at local grocery stores. Jake’s expected to use...

Jake’s Cheese Company produces gourmet cheese for resale at local grocery stores. Jake’s expected to use 0.50 direct labor hours to produce one unit (batch) of product at a cost of $10 per hour. Actual results are in for last year, which indicates 45,000 batches of cheese were sold. The company's direct labor workforce worked 27,500 hours at $9 per hour. (13 Points)

Required:

(1)       Calculate the labor rate variance.

(2)       Calculate the labor efficiency variance.   

(3)       Suggest several possible reasons for the labor rate and efficiency variances.

Business   Accounting   
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Answer #1
Labour rate variance =standard rate - actual rate) actual hours worked
=(10-9)*27500
27500 favourable
Labour efficiency variance =(Standrd hours for actual production - actual hours) standard rate
=(22500-27500)*10
-50000 Unfavourable
Standrd hours for actual production =45000*.5
22500 hours
Reasons
Labour rate variance Change in minimum wage rate
Incorrect standard
More unskilled labours
Labour efficiency variance Better or worse productivity
More idle time
change in mix of labour gang ( skilled and unskilled)
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