ABC has the following information pertaining to its usage of direct labor in a r
ID: 2532986 • Letter: A
Question
ABC has the following information pertaining to its usage of direct labor in a recent period:
Total units manufactured
7,200
Total direct labor hours used
22,000
Actual wage rate per hour
$15
Standard wage rate per hour
$14
Standard hours per unit of output
3
What is the direct labor efficiency variance for the period? (Be sure to note if it is favorable or unfavorable.)
What is the labor rate variance for the period? (Be sure to note if it is favorable or unfavorable.)
Total units manufactured
7,200
Total direct labor hours used
22,000
Actual wage rate per hour
$15
Standard wage rate per hour
$14
Standard hours per unit of output
3
Explanation / Answer
The direct labor efficiency variance= Standard Rate * ( Actual Hours - Standard Hours)
= $ 14 * [ 22,000 Hours - ( 3 Hours * 7,200 Units)]
= $ 5,600
Since the Actual Hours is more than the Standard Hours , the Variance is Unfavorable
Hence the correct answer is $ 5,600 Unfavorable
The labor rate variance = Actual Hours * ( Actual rate - Standard Rate)
= 22,000 Hours * ( $ 15- $ 14)
= $ 22,000
Since the Actual Rate is more than the Standard Rate, the Variance is Unfavorable
Hence the correct answer is $22,000 Unfavorable