The company reported the following results concerning this product in June. The
ID: 1100606 • Letter: T
Question
The company reported the following results concerning this product in June. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The labor rate variance for June is: The company reported the following results concerning this product in June. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The labor efficiency variance for June is:Explanation / Answer
Correct Solutions with formula and calculation are already provided (below the answer), so I can just discuss the logic behind favorable and unfavorable.
Labor rate variance is unfavorable when the actual payment per labor hour exceeds the anticipated (or standard) payment to be made per labor hour. It will become favorable if lesser actual payment per hour (i.e. less than standard rate per hour) is made to the labor.
Labor efficiency variance is favorable because the labor actually took lesser time to produce the actual quantity then the anticipated total time (or total standard time) that should have been taken by them. This will change to unfavorable when more actual time is taken by the labor (i.e. more than the total standard time) to produce the actual quantity.