Question

6-20 Direct labor variance calculation and explanation

(LO 4, 5) Hunter Family Instruments makes cellos. During the past year, the company made 6,400 cellos even though the budget planned for only 5,600. The company paid its workers an average of $15 per hour, which was $1 higher than the standard labor rate. The production manager budgets four direct labor hours per cello. During the year, a total of 24,320 direct labor hours were worked.

Required

a.Calculate the direct labor rate and efficiency variances.

b.What might have caused the variances you calculated?

Answer 1

a.
Direct Labor rate Variance = (Actual rate - standard rate) x Actual hours
= ($15 - $14) x 24320 = $24320 (U)

Direct Labor efficiency Variance = (Actual hours - standard hours) x Standard rate
= (24320 - 25600) x $14 = $17920 (F)
Standard hours = 6400 x 4 = 25600

b.
The variance is due to higher labor rate paid, but since lower number of hours are used to produce units, it is due to experienced workers since they are also paid more. More skilled workers used