15.4 Direct Labor Variances Flashcards
A company had a total labor variance of $15,000 favorable and a labor efficiency variance of $18,000 unfavorable. The labor price variance was
A. $3,000 favorable
B. $3,000 unfavorable
C. $33,000 favorable
D. $33,000 unfavorable
C. $33,000 favorable
Total labor variance = labor price variance + labor efficiency variance
$15,000 = x - 18,000
x=33,000
An unfavorable direct labor efficiency variance could be caused by a(n)
A. Unfavorable fixed overhead volume variance
B. Unfavorable direct materials usage variance
C. Favorable variable overhead spending variance
D. Unfavorable variable overhead spending variance
B. Unfavorable direct materials usage variance
An unfavorable direct labor efficiency variance indicates that actual hours exceeded standard hours. Too many hours may have been used because of inefficiency on the part of employees, excessive coffee breaks, machine down-time, inadequate materials, or materials of poor quality that required excessive rework. An unfavorable direct materials usage variance might be related to an unfavorable labor efficiency variance. Working on a greater quantity of direct materials may require more direct labor time.
A company had a total labor variance of $15,000 favorable and a labor efficiency variance of $18,000 unfavorable. The labor price variance was
A. $33,000 favorable
B. $33,000 unfavorable
C. $3,000 unfavorable
D. $3,000 favorable
A. $33,000 favorable
The total variance for labor consists of a price (rate) variance and an efficiency (usage) variance. Since the total variance is $15,000 favorable, the price variance must be $33,000 favorable.
-18,000 + 33,000 = $15,000
The total budgeted direct labor cost of a company for the month was set at $75,000 when 5,000 units were planned to be produced. The following standard cost, stated in terms of direct labor hours (DLH), was used to develop the budget for direct labor cost:
1.25 DLH × $12.00/DLH = $15.00/unit produced
The actual operating results for the month were as follows:
Actual units produced: 5,200
Actual direct labor hours worked: 6,600
Actual direct labor cost: $77,220
The direct labor efficiency variance for the month would be
A. $2,220 unfavorable
B. $3,000 unfavorable
C. $1,200 unfavorable
D. $4,200 unfavorable
C. $1,200 unfavorable
The direct labor efficiency variance equals the difference between the standard and actual amounts of labor hours times the standard labor rate.
The standard amount for the actual output is 6,500 direct labor hours (1.25 DLH x 5,200 units). The efficiency variance is therefore $1,200 U [(6,500 standard hours - 6,600 actual hours) x $12]
A company uses a standard-cost system. Direct labor information for July is as follows:
Standard hours allowed for actual production: 3,000
Actual rate paid per hour: $9.35
Standard rate per hour: $8.50
Labor efficiency variance: $1,870 U
The actual hours worked equaled
A. 2,780
B. 2,800
C. 3,220
D. 3,200
C. 3,220
The standard hours allowed equaled 3,000 and the labor efficiency variance was $1,870 unfavorable; that is, actual hours exceeded standard hours.
The labor efficiency variance equals the standard rate ($8.50) x the excess hours. Given that the variance is $1,870, 220 excess hours (1,870 / 8.50) must have been worked. Thus, 3,220 actual hours (3,000 standard + 220 excess) were worked.
The inventory control supervisor at a corporation reported that a large quantity of a part purchased for a special order that was never completed remains in stock. The order was not completed because the customer defaulted on the order. The part is not used in any of the corporation’s regular products. After consulting with the corporation’s engineers, the vice president of production approved the substitution of the purchased part for a regular part in a new product. The corporation’s engineers indicated that the purchased part could be substituted providing it was modified. The units manufactured using the substituted part required additional direct labor hours resulting in an unfavorable direct labor efficiency variance in the Production Department. The unfavorable direct labor efficiency variance resulting from the substitution of the purchased part in inventory is best assigned to the
A. Production manager
B. Sales manager
C. Inventory supervisor
D. Vice president of production
D. Vice president of production
An unfavorable direct labor efficiency variance is normally charged to the production manager, the person with the most control over the amount and kinds of direct labor used.
However, that individual is not responsible. (S)he was told to use the nonconforming part that required extra labor time. Thus, the variance should be charged to the vice president of production, the individual who most influenced the incurrence of the cost.
A company manufactures a single product with a standard direct labor cost of 2 hours at $10.00 per hour. During November, 1,500 units were produced requiring 3,200 hours at $10.25 per hour. What was the unfavorable direct labor efficiency variance?
A. $1,250
B. $2,050
C. $2,000
D. $1,200
C. $2,000
The direct labor efficiency variance = (AQ - SQ) x SP
The standard rate is $10 per hour. The actual amount of labor hours is 3,200 hours. The standard amount of labor hours is 3,000 (2 hours x 1,500 units).
Thus, the direct labor efficiency variance is $2,000 [(3,000 - 3,200) x $10]. The variance is unfavorable because more labor hours were used than the standard.
One of the items produced by a manufacturer of lawn and garden tools is a chain saw. The direct labor standard for assembling and testing a chain saw is 2.5 hours at $8 per hour. Budgeted production for October was 1,200 units. Actual production during the month was 1,000 units, and direct labor cost was $27,840 for 3,200 hours.
What is the direct labor efficiency variance?
A. $5,600 unfavorable
B. $5,600 favorable
C. $2,240 unfavorable
D. $6,090 favorable
A. $5,600 unfavorable
The direct labor efficiency variance = (standard hours - actual hours) x standard rate
The standard hours are the number of standard labor hours required for the actual good output achieved. Actual labor hours equaled 3,200, standard hours were 2,500 (1,000 units of output x 2.5 hours), and the standard direct labor rate was $8. Thus, the labor efficiency variance was $5,600 U [(2,500 standard hours- 3,200 actual hours) x $8]
Firm XYZ is looking to reduce its labor costs. In doing so, it has hired workers who are less skilled. Assigning these workers to a job will most likely result in
A. Higher-quality products
B. Expedited job times
C. An unfavorable labor rate variance
D. An unfavorable efficiency variance
D. An unfavorable efficiency variance
A favorable labor rate variance is usually caused by assigning workers with less skill to a job. However, a favorable rate variance may be offset by an unfavorable efficiency variance or lower-quality products.
A company uses standard costing and flexible budgeting and is evaluating its direct labor. The flexible budget variance can usually be broken down into two other variances identified as the
A. Direct labor rate variance and direct labor efficiency variance
B. Direct labor cost variance and direct labor efficiency variance
C. Direct labor cost variance and direct labor volume variance
D. Direct labor rate variance and direct labor volume variance
A. Direct labor rate variance and direct labor efficiency variance.
Any flexible budget variance for direct labor (or direct material) can be subdivided into two component variances, the rate (price) variance and the efficiency (quantity, usage) variance.
A company’s budget indicated that it should produce 11,000 units of finished goods using 22,000 hours of direct labor at a cost of $20 per hour. Actual results showed that 10,000 units of finished goods were manufactured, utilizing 21,000 labor hours at $19.75 per hour. If the company used a standard cost system, the dollar amount of direct labor traced to the units manufactured would total
A. $440,000
B. $400,000
C. $420,000
D. $414,750
B. $400,000
Under a standard cost system, the amount charged to production is therefore standard cost per unit for the number of units produced. In this case, the standard cost is $20 per hour and each unit is expected to use 2 hours of direct labor (22,000 hours / 11,000 units). Thus, the charge for 10,000 actual units would be 20,000 standard hours at $20 per hour, or $400,000.
A company produced 600 units of one of its products last year. The standard for labor hours allowed was 2 hours per unit at a standard rate of $6 per hour. Actual hours worked amounted to 1,230 hours. The labor rate variance was $246 unfavorable, and the labor efficiency variance was $180 unfavorable. What was the actual direct labor cost for the period?
A. $7,200
B. $7,314
C. $7,380
D. $7,626
D. $7,626
The standard direct labor cost for 1,230 actual hours at $6 per hour equals $7,380. The rate variance of $246 was unfavorable, which means that the actual cost was $246 higher than the standard cost, or $7,626 (7,380 + 246)
Or labor rate variance equation is
(SP-AP) x AQ
With labor rate variance of $246 unfavorable, (SP-AP) x AQ = -$246
SP = $6, AQ = 1,230
($6-AP) x 1,230 = -246
7380 - 1230 AP = -246
-1236 x AP = -7626
Therefore, actual price x actual quantity is 7626.
How to calculate the total static budget direct labor variance
total actual direct labor cost - standard direct labor cost
Standard direct labor cost (standard hours x standard rate)
The following is a standard cost variance analysis report on direct labor cost for a division of a manufacturing company.
- Total actual hours at actual wages: $48,500
- Total actual hours at standard wages: $48,600
- Total standard hours at standard wages: $46,600
What is the total static budget direct labor variance for the division?
A. $100 unfavorable
B. $1,900 unfavorable
C. $100 favorable
D. $1,900 favorable
B. $1,900 unfavorable
46,600 standard wages at standard hours - 48,500 actual wages at actual hours
Direct labor costs for June were as follows:
- Actual direct labor hours: 32,000
- Standard direct labor hours: 33,600
- Direct labor rate variance – favorable: $6,720
- Standard direct labor rate per hour: $5.04
Compute total direct labor payroll for the month of June.
A. $167,6870
B. $154,880
C. $168,000
D. $154,560
D. $154,560
When the actual direct labor rate is unknown, the total direct labor payroll can be found by multiplying the actual hours by the standard rate, then subtracting the favorable labor variance.
(32,000 x $5.04) - $6,720 = $154,560
