Javonte Co. set standards of 3 hours of direct labor per unit of product and $15 per hour for the labor rate. During October, the company uses 16,250 hours of direct labor at a $247,000 total cost to produce 5,600 units of product. In November, the company uses 22,000 hours of direct labor at a $335,500 total cost to produce 6,000 units of product. 1. Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months. Classify each variance as favorable or unfavorable. 2. Javonte investigates variances of more than 5% of actual direct labor cost. Which direct labor variances will the company investigate further?
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.
Javonte Co. set standards of 3 hours of direct labor per unit of product and $15 per hour for the labor rate.
During October, the company uses 16,250 hours of direct labor at a $247,000 total cost to produce 5,600
units of product. In November, the company uses 22,000 hours of direct labor at a $335,500 total cost to
produce 6,000 units of product.
1. Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor
cost variance for each of these two months. Classify each variance as favorable or unfavorable.
2. Javonte investigates variances of more than 5% of actual direct labor cost. Which direct labor variances
will the company investigate further?
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