Question

Javonte Co set standards of 3 hours of direct labor per unit of product and $15.90 per hour for the labor rate. During October, the company uses 19,000 hours of direct labor ata $305.900 total cost to produce 6,500 units of product. In November, the company uses 23.000 hours of direct laborat a $371.450 total cost to produce 6,900 units of product. AH - Actual Hours SH - Standard Hours AR - Actual Rate SR - Standard Rate
(1) Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost varlance for each of these two months. Classify each variance as favorable or unfavorable.
(2) Javonte Investigates variances of more than 5% of actual direct labor cost. Which direct labor variances will the company Investigate further?

Answer 1

Answer:

(a) The Labor rate variance = $5,750(Unfavorable), the labor efficiency variance = $36,570(Unfavorable), the direct labor variance =$42,320(Unfavorable) (b)The company will investigate Labor efficiency variance

Explanation:

Given that:

The Labor rate variance =Actual hours(Standard rate - Actual rate)    

The Labor efficiency variance =Standard Rate(Actual Hours - Standard Hours)

The  Direct labor variance =(Standard rate*Standard hours) - (Actual Rate*Actual hours)

Now,

The Data for October:    

The Standard Rate(SR) =$15.90    

The Standard Hours =3 hours*6,500 units =19,500 hours    

The Actual Rate(AR) =$305,900 / 19000 hours =$16.10    

Actual Hours(AH) =19,000 hours

Thus,

The Data for November:    

The Standard Rate(SR) =$15.90    

The Standard Hours =3 hours*6,900 units =20,700 hours    

The Actual Rate(AR) =$371,450 / 23,000 =$16.15 per hour    

Actual Hours(AH) =23,000 hours

(a) The Labor rate variance =23,000($15.90 - $16.15) =$5,750(Unfavorable)  

The Labor efficiency variance =$15.90(23,000 hours - 20,700 hours)  =$36,570(Unfavorable)  

Direct labor variance =($15.90*20,700) - ($16.15*23,000) =$329,130 - $371,450 =$42,320(Unfavorable)

(b) The company will investigate Labor efficiency variance.