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1 February, 09:20

Oriole Family Instruments makes cellos. During the past year, the company made 6,630 cellos even though the budget planned for only 5,780. The company paid its workers an average of $15 per hour, which was $1 higher than the standard labor rate. The production manager budgets four direct labor hours per cello. During the year, a total of 24,840 direct labor hours were worked.

Required:

Calculate the direct labor rate and efficiency variances.

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Answers (1)
  1. 1 February, 09:43
    0
    Direct Labor rate Variance $ 24840 Unfavorable

    Labor Efficiency Variance $23520 favorable

    Explanation:

    Direct Labor rate Variance = Actual Hours * Actual Rate - Actual Hour * Standard Rate

    Direct Labor rate Variance = 24840*15 - 24840*14

    = 372600 - 347760

    = $ 24840 Unfavorable

    Labor Efficiency Variance = Actual Hours * Standard Rate - Standard Hour * Standard Rate

    Labor Efficiency Variance = 24840*14 - 4*6630*14

    = 24840*14 - 26520*14

    = 347760 - 371280 = $23520 favorable
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