Question

The following labor standards have been established for a particular product:

Standard labor hours per unit of output		4.5	hours
Standard labor rate	$	20.30	per hour

The following data pertain to operations concerning the product for the last month:

Actual hours worked		7,100	hours
Actual total labor cost	$	144,840
Actual output		1,500	units

Required:

a. What is the labor rate variance for the month?

b.  What is the labor efficiency variance for the month?

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

Labour rate variance = [SR - AR] × AHW

Labour efficiency variance = [SH - AHW] × SR

Given information,

AHW = actual hours worked = 7100 hours

AR = Actual rate = $144840 ÷ 7100 = $20.4 per hour

SR = Standard rate per hour = $20.30 per hour

SH = Standard hours = 4.5 hrs × 1500 units = 6750 hours

Labour rate variance :-

= [SR - AR] × AHW

= [20.30 - 20.40] × 7100

= -0.1 × 7100

= 710 (U)

Labour efficiency variance :-

= [SH - AHW] × SR

= [6750 - 7100] × 20.30

= -350 × 20.30

= 7105 (U)

Therefore,

Labour rate variance = 710 (U)

Labour efficiency variance = 7105 (U)

These are all the information required to solve there were given question.

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