Verde Company produces wheels for bicycles. During the year, 660,000 wheels were produced. The actual labor used was 368,000 hours at $9.20 per hour. Verde has the following labor standards: 1) $10.20 per hour; 2) 0.5 hour per wheel. REQUIRED 1. Compute the labor rate variance. 2. Compute the labor efficiency 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.
Verde Company produces wheels for bicycles. During the year, 660,000 wheels were produced. The actual labor used was 368,000 hours at $9.20 per hour. Verde has the following labor standards: 1) $10.20 per hour; 2) 0.5 hour per wheel.
REQUIRED
1. Compute the labor rate variance.
2. Compute the labor efficiency variance.
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