qs 21-11 (algo) direct labor rate and efficiency variances lo p3

a company reports the following information for its direct labor.

actual hours of direct labor used: 67,000
actual rate of direct labor per hour: $ 15
standard rate of direct labor per hour: $ 13
standard hours of direct labor for units produced: 68,700

ah = actual hours
sh = standard hours
ar = actual rate
sr = standard rate

compute the direct labor rate and efficiency variances and identify each as favorable or unfavorable.

Question

qs 21-11 (algo) direct labor rate and efficiency variances lo p3

a company reports the following information for its direct labor.

actual hours of direct labor used: 67,000
actual rate of direct labor per hour: $ 15
standard rate of direct labor per hour: $ 13
standard hours of direct labor for units produced: 68,700

ah = actual hours
sh = standard hours
ar = actual rate
sr = standard rate

compute the direct labor rate and efficiency variances and identify each as favorable or unfavorable.

Accepted Answer

{ "quality": "clear", "question_count": 1, "skills_matched": [ "step_cot", "explain_then_answer", "quick" ], "needs_drawing": false, "concepts_used": [], "new_concepts": [ "Direct Labor Rate Variance", "Direct Labor Efficiency Variance" ], "current_concepts": [ "Direct Labor Rate Variance", "Direct Labor Efficiency Variance", "Variance Analysis", "Favorable and Unfavorable Variances" ] } ## Calculate Actual Cost, Standard Cost, and Intermediate Value $$ \begin{aligned} \text{Actual Cost (AH} \times \text{AR)} &= 67,000 \times \$15 = \$1,005,000 \ \text{AH} \times \text{SR} &= 67,000 \times \$13 = \$871,000 \ \text{Standard Cost (SH} \times \text{SR)} &= 68,700 \times \$13 = \$893,100 \end{aligned} $$ ## Compute Direct Labor Rate Variance $$ \begin{aligned} \text{Direct Labor Rate Variance} &= (\text{AH} \times \text{AR}) - (\text{AH} \times \text{SR}) \ &= \$1,005,000 - \$871,000 = \$134,000 \quad \text{(Unfavorable)} \end{aligned} $$ ## Compute Direct Labor Efficiency Variance $$ \begin{aligned} \text{Direct Labor Efficiency Variance} &= (\text{AH} \times \text{SR}) - (\text{SH} \times \text{SR}) \ &= \$871,000 - \$893,100 = -\$22,100 \quad \text{or} \quad \$22,100 \quad \text{(Favorable)} \end{aligned} $$ $$ \begin{aligned} &\textbf{Actual Cost (AH} \times \textbf{AR):} \ &67,000 \text{ hours} \times \$15/\text{hour} = \$1,005,000 \ \ &\textbf{AH} \times \textbf{SR:} \ &67,000 \text{ hours} \times \$13/\text{hour} = \$871,000 \ \ &\textbf{Standard Cost (SH} \times \textbf{SR):} \ &68,700 \text{ hours} \times \$13/\text{hour} = \$893,100 \ \ &\textbf{Direct Labor Rate Variance:} \ &\$134,000 \quad \text{Unfavorable} \ \ &\textbf{Direct Labor Efficiency Variance:} \ &\$22,100 \quad \text{Favorable} \ \ &\textbf{Total Direct Labor Variance:} \ &\$111,900 \quad \text{Unfavorable} \end{aligned} $$ { "subject": "Business", "question_type": "Free Response", "knowledge_point": [ "Business", "Accounting", "Direct Labor Variances" ] }

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Question

Explanation:

Calculate Actual Cost, Standard Cost, and Intermediate Value

Compute Direct Labor Rate Variance

Compute Direct Labor Efficiency Variance

Answer: