Question

The standard cost of product 5252 includes 1.90 hours of direct labor at $14.00 per hour. The predetermined overhead rate is $22.00 per direct labor hour. During July, the company incurred 4,000 hours of direct labor at an average rate of $14.30 per hour and $81,300 of manufacturing overhead costs. It produced 2,000 units.
(a) Compute the total, price, and quantity variances for labor.

Total labor variance $
Labor price variance $
Labor quantity variance $
(b) Compute the total overhead variance.

Total overhead variance $

Answer 1

Answer:

a. Total labor variance $4,000 Unfavorable

Labor price variance $1,200 Unfavorable

Labor quantity variance $2,860 Unfavorable

b. $2,300 Favorable

Explanation:

a. The computation of total, price, and quantity variances for labor is shown below:-

1. Total labor variance = (Produced units × Direct labor hours × Per hour) - (Company direct labor hours × Average rate)

= (2,000 × 1.90 × $14.00) - (4,000 × $14.30)

= $53,200 - $57,200

= $4,000 Unfavorable

Labor rate variance =  (Per hour - Average rate) × Company direct labor hours

= ($14.00 - $14.30) × 4,000

= -$0.3 × 4,000

= $1,200 Unfavorable

Labor efficiency variance = (Produced units × Direct labor hours - Company direct labor hours) × Per hour

= (2,000 × 1.90 - 4,000) × $14.30

= (3,800 - 4,000)  × $14.30

= -200 × $14.30

= $2,860 Unfavorable

b) Total overhead variance = Manufacturing overhead cost - (Produced units × Direct labor hours × Predetermined overhead rate)

= $81,300 - (2,000 × 1.90 × $22.00)

= $81,300 - $83,600

= $2,300 Favorable