TWO QUESTIONS ARE CONNECTED TOGETHER!

QUESTION 1:

Labor Rate Variance

• Bruce incurred actual direct labor costs of $14,040 in March.

• Standard hourly Labor rate $13

• The standard labor cost allowed for manufacturing 600 beams is only $11,700 (600 units

  1.5 hours per unit $13 per hour).

• Thus, the company is faced with an unfavorable labor variance of $2,340 ($11,700

  $14,040).

• Timecards show that 2,075 Actual direct labor hours were used in March.

• The average wage rate for the month was $14per hour. (Actual rate = $14)

• Calculate the labor rate variance

• Labor Rate Variance = Actual direct Labor Hours (Standard hourly labor Rate Actual Rate)

QUESTION 2: *Note this question builds on question 1

• The labor efficiency variance (also called the labor usage variance) is a measure of worker productivity.

• The labor efficiency variance is computed by multiplying the standard hourly wage rate by the difference between the standard hours allowed and actual hours used.

• Bruce allows 900 standard labor hours to produce 600 beams (600 units 1.5 hours per unit).

• Standard hourly Labor rate $13

• Timecards show that 2,075 Actual direct labor hours were used in March.

• Compute the labor efficiency variance: *Note this question builds on question 1

  Given that 2,075 hours were actually required, the companys unfavorable labor efficiency variance for March is computed as follows.

  Labor Efficiency Variance = Standard Hourly labor Rate (Standard labor Hours Actual Direct labor Hours)