I need help with the following managerial accounting question involving Labor ra

Question

I need help with the following managerial accounting question involving Labor rate and Labor rate variance efficiency.

Exercise 11-14 The Pembina Company uses a standard costing system. In August, 5,950 actual labor hours were worked at a rate of $12.60 per hour. The standard number of hours is 4,840 and the standard wage rate is $13.50 per hour. Determine the Labor Rate and Variance Labor Efficiency Variance. (Enter all variances as a positive number.) Labor Rate Variance Labor Efficiency Variance 5355 Favorable 14985 Unfavorable SHOW LIST OF ACCOUNTS LINK TO TEXT

Explanation / Answer

Labour rate variance                       = (Standard rate – Actual rate) x Actual hours worked

                                                                = ($13.50-$12.60)*5950

                                                                = $5,355 - Favourable

Labour efficiency variance           = (Standard labour hours - Actual labour hours)*standard rate

                                                                =(4840-5950)*13.50

                                                                = -$14,985 - Unfavourable          

Working in progress - Labour - Debit                       $65,340

(standard labour hours * standard rate)

Labour efficiency variance account - Debit            $14,985

                To Labour rate variance account - Credit $5,355

                To Wages payable - Credit                                           $74,970

                (actual labour hours *actual rate)

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