A company reports the following information for its direct labor. Actual hours of direct labor used 64,000 Actual rate of direct labor per hour $ 15 Standard rate of direct labor per hour $ 13 Standard hours of direct labor for units produced 65,300 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.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
A company reports the following information for its direct labor.
| Actual hours of direct labor used | 64,000 |
|---|---|
| Actual rate of direct labor per hour | $ 15 |
| Standard rate of direct labor per hour | $ 13 |
| Standard hours of direct labor for units produced | 65,300 |
AH = Actual Hours
SH = Standard Hours
SR = Standard Rate
Compute the direct labor rate and efficiency variances and identify each as favorable or unfavorable.
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