Chapter 13, Problem 13.24E

### Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

Chapter
Section

### Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

# Direct labor variances Death Valley Bicycle Company manufactures mountain bikes. The following data for Octo-ber of the current year are available:Determine the direct labor rate and time variances.

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:

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

3. 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:
4.   Direct labor efficiency variance = (Actual hours – Standard hours)×Standard rate

5. 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:
6.   Direct labor cost variance = Direct labor rate variance + Direct labor efficiency variance

Or

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

Requirement-1:

To Calculate:

The Direct Labor Rate and Time variances

Explanation

The Direct Labor Rate and Time variances are calculated as follows:

 Direct Labor Rate Variance: Actual Rate (A) $18.50 Per hour Standard Rate (B)$ 19.00 Per hour Actual hours (C) 1100 Hours Direct Labor Rate Variance (D) = (A-B)*C = \$ 550 Favorable

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