Question

Edelman Oil performs oil changes. The standard wage rate for oil change technicians is $ 17 per hour. By analyzing its past records of time spent on oil​ changes, the company has developed a standard of 18 minutes​ (or 0.30 ​hours) per oil change. In​ July, 1 comma 600 oil changes were performed at Edelman Oil. Oil change technicians worked a total of 310 direct labor hours at an average rate of $ 24 per hour.
a. Calculate the direct labor rate variance.
b. Calculate the direct labor efficiency variance.

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

The standard wage rate for oil change technicians is $ 17 per hour. standard of 18 minutes​ (or 0.30 ​hours) per oil change.

Production= 1,600 oil changes

Actual hours= 310 direct labor hours

the average rate= $ 24 per hour.

To calculate the direct labor rate and efficiency variance, we need to use the following formulas:

Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate

Direct labor time (efficiency) variance= (0.3*1,600 - 310)*17

Direct labor time (efficiency) variance= $2,890 favorable

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

Direct labor rate variance= (17 - 24)*310

Direct labor rate variance= $2,170 unfavorable