   Chapter 13, Problem 24CDQ

Chapter
Section
Textbook Problem

a. What are the two variances between the actual cost and the standard cost for direct labor? b. Who generally has control over the direct labor cost?

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

To Indicate:

The two variances between the actual cost and standard cost of direct labor and who has control over the direct labor cost

Explanation

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)

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