Chapter 15, Problem 15.11E

To determine

Concept Introduction:

Standard Costing System: Standard Costing system allows estimating the costs, preparing budgets for future periods, and analyzing the performance by comparing the budgets with actual results and find variances.

Variances: A Variance is a difference between actual and standard figures. There are two main types of Variances as follows:

1. Price variance : Price variance shows the difference between standard price and actual price.
2. Quantity variance: Quantity variance shows the difference between standard quantity and actual quantity.

Direct labor variances: Direct labor variances refer to the difference between the standard direct labor cost and actual direct labor cost incurred. Direct labor cost variances are categorized into following categories:

1. Direct labor Rate variance : this variance shows the difference of standard rate and actual rate of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor rate variance = }\left(\text{Actual rate – Standard rate}\right)\times \text{Actual hours}$

2. Direct labor efficiency variance: this variance shows the difference of standard usage and actual usage of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor efficiency variance = }\left(\text{Actual hours – Standard hours}\right)\times \text{Standard rate}$

3. Direct labor cost variance: this variance shows the difference of standard cost and actual cost of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor cost variance = Direct labor rate variance + Direct labor efficiency variance}$

Or

Direct Labor cost variance = Actual Labor cost − Standard Labor Cost

Requirement-a:

To Calculate:

The actual direct labor rate per hour

To determine

Concept Introduction:

Standard Costing System: Standard Costing system allows estimating the costs, preparing budgets for future periods, and analyzing the performance by comparing the budgets with actual results and find variances.

Variances: A Variance is a difference between actual and standard figures. There are two main types of Variances as follows:

Price variance : Price variance shows the difference between standard price and actual price.

Quantity variance: Quantity variance shows the difference between standard quantity and actual quantity.

Direct labor variances: Direct labor variances refer to the difference between the standard direct labor cost and actual direct labor cost incurred. Direct labor cost variances are categorized into following categories:

Direct labor Rate variance : this variance shows the difference of standard rate and actual rate of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor rate variance = }\left(\text{Actual rate – Standard rate}\right)\times \text{Actual hours}$

Direct labor efficiency variance: this variance shows the difference of standard usage and actual usage of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor efficiency variance = }\left(\text{Actual hours – Standard hours}\right)\times \text{Standard rate}$

Direct labor cost variance: this variance shows the difference of standard cost and actual cost of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor cost variance = Direct labor rate variance + Direct labor efficiency variance}$

Or

Direct Labor cost variance = Actual Labor cost − Standard Labor Cost

Requirement-b:

To Calculate:

The dollar amount of labor efficiency variance

To determine

Concept Introduction:

Standard Costing System: Standard Costing system allows estimating the costs, preparing budgets for future periods, and analyzing the performance by comparing the budgets with actual results and find variances.

Variances: A Variance is a difference between actual and standard figures. There are two main types of Variances as follows:

Price variance : Price variance shows the difference between standard price and actual price.

Quantity variance: Quantity variance shows the difference between standard quantity and actual quantity.

Direct labor variances: Direct labor variances refer to the difference between the standard direct labor cost and actual direct labor cost incurred. Direct labor cost variances are categorized into following categories:

Direct labor Rate variance : this variance shows the difference of standard rate and actual rate of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor rate variance = }\left(\text{Actual rate – Standard rate}\right)\times \text{Actual hours}$

Direct labor efficiency variance: this variance shows the difference of standard usage and actual usage of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor efficiency variance = }\left(\text{Actual hours – Standard hours}\right)\times \text{Standard rate}$

Direct labor cost variance: this variance shows the difference of standard cost and actual cost of labor. The formula to calculate this variance is as follows:

  $\text{Direct labor cost variance = Direct labor rate variance + Direct labor efficiency variance}$

Or

Direct Labor cost variance = Actual Labor cost − Standard Labor Cost

Requirement-c:

To discuss:

The interpretation of the labor efficiency variances