Financial and Managerial Accounting
Financial and Managerial Accounting
7th Edition
ISBN: 9781259726705
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 21, Problem 16E

(1)

To determine

To compute: Direct Labor Rate, Efficiency and Total Direct Labor Cost variance

(1)

Expert Solution
Check Mark

Explanation of Solution

Direct Labor Rate

Formula to calculate Direct Labor Rate Variance,

DirectLaborRateVariance=(StandardRateActualRate)×ActualHour

Direct Labor Rate Variance for October

Substitute $15 for standard rate, $15.2 for actual rate. and 16,250 for actual hours.


DirectLaborRateVariance=(1515.2)×16,250 =$3,250unfavorable

Direct Labor Rate Variance for November

Substitute $15 for standard rate, $15.25 for actual rate. and 22,000 for actual hours.

DirectLaborRateVariance=(1515.25)×22,000 =$5,500unfavorable

Direct Labor Efficiency Variance

Formula to calculate Direct Labor Efficiency Variance,

DirectLaborEfficiencyVariance=[ (StandardHourActualHour) ×StandardRatePerHour ]

Direct Labor Efficiency Variance for October

Substitute 16,800 for standard hour, 16,250 for actual hour. and $15 for standard rate per hour.

DirectLaborEfficiencyVariance=(16,80016,250)×15 =$8250favorable

Direct Labor Efficiency Variance for November

Substitute 18,000 for standard hour, 22,000 for actual hour. and $15 for standard rate per hour.

DirectLaborEfficiencyVariance=(18,00022,000)×15 =$60,000unfavorable

Direct Labor Cost Variance

Formula to calculate Direct Labor Cost Variance,
DirectLaborCostVariance=[ (ActualHour×ActualRate) (StandardHour×StandardRate) ]

Direct Labor Cost Variance for October.

Substitute 16,250 for actual hour, 15.20 for actual rate, 16,800 for standard hour. and $15 for standard rate per hour.

DirectLaborCostVariance=(16,250×15.20)(16,800×15) =$5,000favorable

Direct Labor Cost Variance for November

Substitute 22,000 for actual hour, 15.25 for actual rate, 18,000 for standard hour. and $15 for standard rate per hour.

DirectLaborCostVariance=(22,000×15.25)(18,000×15) =$65,500unfavorable

Thus, Direct Labor Rate Variance for October is $3250 unfavorable and for November is $5,500 unfavorable. Direct Labor Efficiency Variance for October is $8,250 favorable. and for November is $60,000 unfavorable and Direct Labor Cost Variance for October is $5,000 favorable. and for November is $65,500 unfavorable

Working note:

Calculation of Actual labor rate per hour,
ActuallaborrateperhourforOctober= Totalcostpaidtolabor Numberofhourslaboractuallyworked = $247,000 16,250 =$15.2

ActuallaborrateperhourforNovember= Totalcostpaidtolabor Numberofhourslaboractuallyworked = $335,500 22,000 =$15.25

Calculation of standard direct labor hours,
StandarddirectlaborhoursforOctober=( Numberofunitsactuallyproduced ×Standardlaborhourineachunit ) =5,600×3 =16,800laborhours

StandarddirectlaborhoursforNovember=( Numberofunitsactuallyproduced ×Standardlaborhourineachunit ) =6,000×3 =18,000laborhours

(2)

To determine

To interpret: October direct labor variances.

(2)

Expert Solution
Check Mark

Explanation of Solution

In the month of October,

  • There is an unfavorable labor rate variance amounting $ 3,250 because standard rate of labor was $ 15 per hour whereas actual labor rate was $15.2 per hour which resulted in excess cost to company.
  • There is a favorable labor efficiency variance amounting $ 8,250 because standard hours of labor required to produce 5600 units is 16800 hours whereas actual labor hours were 16,250 which resulted in cost saving to company
  • Total labor cost variance amounts $5,000 favorable because favorable labor efficiency variance is more than unfavorable labor rate variance.
  • Thus, there is a total benefit of $5000 to company in October.

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    Chapter 21 Solutions

    Financial and Managerial Accounting

    Ch. 21 - Prob. 6DQCh. 21 - Prob. 7DQCh. 21 - Prob. 8DQCh. 21 - Prob. 9DQCh. 21 - Prob. 10DQCh. 21 - Prob. 11DQCh. 21 - Prob. 12DQCh. 21 - Prob. 13DQCh. 21 - Prob. 14DQCh. 21 - Prob. 15DQCh. 21 - Prob. 16DQCh. 21 - Prob. 17DQCh. 21 - Prob. 18DQCh. 21 - Prob. 1QSCh. 21 - Prob. 2QSCh. 21 - Prob. 3QSCh. 21 - Prob. 4QSCh. 21 - Prob. 5QSCh. 21 - Prob. 6QSCh. 21 - Prob. 7QSCh. 21 - Prob. 8QSCh. 21 - Prob. 9QSCh. 21 - Materials cost variances P2 Juan Company’s output...Ch. 21 - Prob. 11QSCh. 21 - Prob. 12QSCh. 21 - Prob. 13QSCh. 21 - Prob. 14QSCh. 21 - Prob. 15QSCh. 21 - Prob. 16QSCh. 21 - A Preparing overhead entries P5 Refer to the...Ch. 21 - A Total variable overhead cost variance P4 Mosaic...Ch. 21 - A Overhead spending and efficiency variances P4...Ch. 21 - Computing sales price and volume variances A1...Ch. 21 - Sales variances A1 In a recent year, BMW sold...Ch. 21 - Prob. 22QSCh. 21 - Prob. 23QSCh. 21 - Prob. 1ECh. 21 - Prob. 2ECh. 21 - Prob. 3ECh. 21 - Prob. 4ECh. 21 - Prob. 5ECh. 21 - Prob. 6ECh. 21 - Prob. 7ECh. 21 - Exercise 21-8 Standard unit cost; total variance...Ch. 21 - Prob. 9ECh. 21 - Prob. 10ECh. 21 - Prob. 11ECh. 21 - Prob. 12ECh. 21 - Prob. 13ECh. 21 - Exercise 21-14A Materials variances recorded and...Ch. 21 - Prob. 15ECh. 21 - Prob. 16ECh. 21 - Prob. 17ECh. 21 - Prob. 18ECh. 21 - Exercise 21-19 Computation of total overhead rate...Ch. 21 - Exercise 21-20 Computation of volume and...Ch. 21 - Exercise 21-21 Overhead controllable and volume...Ch. 21 - Prob. 22ECh. 21 - Exercise 21-23 Computing and interpreting sales...Ch. 21 - Prob. 1PSACh. 21 - Prob. 2PSACh. 21 - Prob. 3PSACh. 21 - Prob. 4PSACh. 21 - Prob. 5PSACh. 21 - Problem 21-6AA Materials, labor, and overhead...Ch. 21 - Prob. 1PSBCh. 21 - Prob. 2PSBCh. 21 - Prob. 3PSBCh. 21 - Prob. 4PSBCh. 21 - Prob. 5PSBCh. 21 - Problem 21-6BA Materials, labor, and overhead...Ch. 21 - Prob. 21SPCh. 21 - Prob. 1BTNCh. 21 - Prob. 2BTNCh. 21 - Prob. 3BTNCh. 21 - The reason we use the words favorable when...Ch. 21 - Prob. 5BTNCh. 21 - Prob. 6BTNCh. 21 - Prob. 7BTNCh. 21 - Prob. 8BTNCh. 21 - Prob. 9BTN
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