Asked by Kristina Singh on Jun 13, 2024
Verified
Boldrin Incorporated has a standard cost system. The standards for direct labor for one of its products specify 0.20 hours per unit at $18.70 per hour. The company has reported the following actual results for the product for August:
Required:
a. Compute the labor rate variance for August.
b. Compute the labor efficiency variance for August.
Labor Rate Variance
The difference between the actual cost of labor and the expected (or standard) cost, indicating efficiency or inefficiency in labor usage.
Direct Labor
Direct labor involves the work of employees that is directly attributable to the production of goods or provision of services, such as manufacturing labor costs.
- Assess fluctuations in the cost of labor and its operational efficiency.
- Analyze the repercussions of favorable and unfavorable variances.
Verified Answer
JH
Jimmy HuynhJun 15, 2024
Final Answer :
a. Labor rate variance = (Actual hours × Actual rate) − (Actual hours × Standard rate)
= Actual hours × (Actual rate − Standard rate)
= 250 hours × ($18.50 per hour − $18.70 per hour)
= 250 hours × (−$0.20 per hour)
= $50 Favorable
b. Standard hours = 1,300 units × 0.20 hours per unit = 260 hours
Labor efficiency variance = (Actual hours × Standard rate) − (Standard hours × Standard rate)
= (Actual hours − Standard hours) × Standard rate
= (250 hours − 260 hours) × $18.70 per hour
= (−10 hours) × $18.70 per hour
= $187 Favorable
= Actual hours × (Actual rate − Standard rate)
= 250 hours × ($18.50 per hour − $18.70 per hour)
= 250 hours × (−$0.20 per hour)
= $50 Favorable
b. Standard hours = 1,300 units × 0.20 hours per unit = 260 hours
Labor efficiency variance = (Actual hours × Standard rate) − (Standard hours × Standard rate)
= (Actual hours − Standard hours) × Standard rate
= (250 hours − 260 hours) × $18.70 per hour
= (−10 hours) × $18.70 per hour
= $187 Favorable
Learning Objectives
- Assess fluctuations in the cost of labor and its operational efficiency.
- Analyze the repercussions of favorable and unfavorable variances.
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