Question

Direct Labor Variances

Assume that Nortel manufactures specialty electronic circuitry through a unique photoelectronic process. One of the primary products, Model ZX40, has a standard labor time of 0.5 hour and a standard labor rate of $13.00 per hour. During February, the following activities pertaining to direct labor for ZX40 were recorded: Direct labor hours used 2,180 Direct labor cost $32,000 Units of ZX40 manufactured 4,600

(a) Determine the labor rate variance.
$Answer

F

U

(b) Determine the labor efficiency variance.
$Answer

F

U

(c) Determine the total flexible budget labor cost variance.
$Answer

F

U

Answer 1

(a) Labor rate variance

Actual Labor Rate = $32,000 / 2,180

Labor rate variance
= (Actual Labor Rate - Standard Labor Rate) x Actual Labor Hours
= ( $32,000 / 2,180 - $13.00 ) x 2,180
= ($14.679 - $13) x 2,180
= $3,660
= $3,660 U

(b) Labor efficiency variance

Standard Labor hours for Acutal Output = 4600 x 0.5 = 2300 hours

Labor efficiency variance
= (Actual Labor hours used - Standard Labor hours for Acutal Output) x Standard Labor Price
= (2180 - 2300) x $13.00
= - $1560
= $1560 F

(c) Total flexible budget labor cost variance

= Actual Labor Cost - Standard Labor Cost
= $32,000 - (2300 hours x $13.00)
= $32,000 - $29,900
= $2100
= $2100 U