Chapter 23, Problem 6DQ

To determine

Introduction:

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:

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

The Departments responsible for direct labor rate variance and direct labor efficiency variance