Assume that Nortel manufactures specialty electronic circuitry through a unique photoelectronic process. One of the primary products, Model ZX40, has a standard labor time of 0.5 hour and a standard labor rate of $12.50 per hour. During February, the following activities pertaining to direct labor for ZX40 were recorded: Direct labor hours used 2,230 Direct labor cost $34,000 Units of ZX40 manufactured 4,800 Labor Rate Variance = 6125 Labor efficiency variance = 2125 Determine the total flexible budget labor cost variance.
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.
Direct Labor Variances
Assume that Nortel manufactures specialty electronic circuitry through a unique photoelectronic process. One of the primary products, Model ZX40, has a standard labor time of 0.5 hour and a standard labor rate of $12.50 per hour. During February, the following activities pertaining to direct labor for ZX40 were recorded:
| Direct labor hours used | 2,230 |
| Direct labor cost | $34,000 |
| Units of ZX40 manufactured | 4,800 |
Labor Rate Variance = 6125
Labor efficiency variance = 2125
Determine the total flexible budget labor cost variance.
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