
1.
Compute the direct labor rate variances, direct labor efficiency variances and the
Total direct labor cost variances for October and November month.
1.

Explanation of Solution
Direct Labor Rate Variance
The direct labor rate variance is a measure to determine the variation in the estimated cost of the direct labor and the actual cost of the direct labor.
The following formula is used to calculate the direct labor rate variance:
Compute the direct labor rate variances for October:
Working note:
Calculate the actual rate per hour:
Direct labor efficiency variance is a measure that determines the difference between the estimated labor quantity and the actual labor quantity used.
Compute the direct labor efficiency variance for October:
Working note:
Calculate the standard hours used:
Direct labor variance:
The direct labor variance refers to the variation in the actual amount paid for labor and the amount that should have been paid. The total labor variance is the sum of labor price variance and the labor quantity variance.
Direct labor cost variance is a measure that determines the difference between the estimated cost of the direct labor and the actual cost of the direct labor.
Total direct labor cost variances for October month:
Compute the direct labor rate variances for November:
Working note:
Calculate the actual rate per hour:
Compute the direct labor efficiency variance for November:
Working note:
Calculate the standard hours used:
Total direct labor cost variances for November month:
Hence, the direct labor rate variance is $3,250 (unfavorable), direct labor efficiency variance is $8,250 (favorable) and total direct labor cost variances for October month is $5,000 F.
Hence, the direct labor rate variance is $8,250 (unfavorable), direct labor efficiency variance is $60,000 (unfavorable) and total direct labor cost variances for November month is $65,500 U.
2.
Interpret the October direct labor variances.
2.

Explanation of Solution
Unfavorable Variance caused when the actual costs are more and the
The direct labor rate variance for the month of October is $3,250 (unfavorable) indicates that actual rate for an hour is higher than budgeted cost.
The direct labor efficiency variance for the month of October is $8,250 (favorable) indicates that actual hour used is less than budgeted cost.
These two variance result indicates that employees are paid more than the budgeted costs. Also, those employees are engaged in more productive than budgeted. During October, effective labors were used. In November month, there was an unfavorable rate variance and unfavorable efficiency variance.
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Chapter 23 Solutions
Principles of Financial Accounting, Chapters 1-17 - With Access (Looseleaf)
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