Question

4
the following labor standards have been established for a particular product:
standard labor hours per unit of output 4.6 hours
standard labor rate $ 17.50 per hour
the following data pertain to operations concerning the product for the last month:
actual hours worked 6,000 hours
actual total labor cost $ 105,600
actual output 1,200 units
required:
a. what is the labor rate variance for the month?
b. what is the labor efficiency variance for the month?
note: indicate the effect of each variance by selecting \f\ for favorable, \u\ for unfavorable, and
one\ for no effect (i.e., zero variance). input all amounts as positive values.
a. labor rate variance
b. labor efficiency variance

Explanation:

Step1: Calculate actual labor rate

Actual labor rate = Actual total labor cost / Actual hours worked
Actual labor rate = $\frac{105000}{6000}= 17.5$ dollars per hour

Step2: Calculate labor rate variance

Labor rate variance formula: $LRV=(AR - SR)\times AH$
Where $AR$ (actual rate) = $17.5$, $SR$ (standard rate) = $17.5$, $AH$ (actual hours) = $6000$
$LRV=(17.5 - 17.5)\times6000 = 0$

Step3: Calculate standard hours for actual output

Standard hours ($SH$) = Standard hours per unit $\times$ Actual output
$SH=4.6\times1200 = 5520$ hours

Step4: Calculate labor efficiency variance

Labor efficiency variance formula: $LEV=(AH - SH)\times SR$
Where $AH = 6000$, $SH = 5520$, $SR=17.5$
$LEV=(6000 - 5520)\times17.5$
$LEV = 480\times17.5=8400$ (unfavorable as $AH>SH$)

Answer:

a. Labor rate variance: \(0\) (None)
b. Labor efficiency variance: \(8400U\)