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: Direct labor rate variance = ( Actual rate – Standard rate ) × 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: Direct labor efficiency variance = ( Actual hours – Standard hours ) × Standard rate Direct labor cost or spending variance: this variance shows the difference of standard cost and actual cost of labor. The formula to calculate this variance is as follows: Direct labor cost variance = Direct labor rate variance + Direct labor efficiency variance Or, Direct Labor cost variance = Actual Labor cost − Standard Labor Cost To indicate: The Journal entry for Direct labor Cost and related variances.

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Chapter 9, Problem 7.2GAP

To determine

Concept 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:

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:

Direct labor rate variance = (Actual rate – Standard rate) ×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:

Direct labor efficiency variance = (Actual hours – Standard hours)×Standard rate

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

Direct labor cost variance = Direct labor rate variance + Direct labor efficiency variance Or, Direct Labor cost variance = Actual Labor cost − Standard Labor Cost

To indicate:

The Journal entry for Direct labor Cost and related variances.

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