Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077632991
Author: Wild
Publisher: MCG
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 23, Problem 16E
To determine

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

Direct Labor Cost Variance:

The variance between the actual labor cost incurred and the budgeted labor cost is termed as direct labor cost variance. It can be computed by deducting the budgeted labor cost from the actual cost. On the contrary, it can also be ascertained by adding the direct labor rate variance and direct labor efficiency variance.

To determine:

1. Computation of direct labor rate, efficiency, cost variance for the month October and November.

2. Interpret the variances.

Expert Solution & Answer
Check Mark

Answer to Problem 16E

Solution:

1.

Direct Labor October November
Rate Variance $3,250 U $5,500 U
Efficiency Variance $8,250 F $60,000 U
Cost Variance $5,000 F $65,500 U

2. Interpretation:

Direct Labor Rate Variance:

The unfavorable variance of $3,250 in October is caused by the difference between the actual rate per hour with $15.20 and the standard rate per hour with $15.00. When the actual labor hours increases to 22,000 hours and the actual rate increases to $15.25, the difference of $0.25 per labor rate results in unfavorable variance of $5,500.

Direct Labor Efficiency Variance:

In the October month, Null Company had favorable direct labor efficiency variance of $ 8,250 because the actual labor hour (16,250) was less than the standard labor hours (16,800) estimated for the month. But in the month of November, the company had unfavorable variance of $60,000 in direct labor efficiency because of the actual labor hour (22,000) was more than the standard labor hour (18,000) estimated.

Direct Labor Cost Variance:

The company had favorable direct cost variance of $5,000 in the month of October due to budgeted direct labor cost more than the actual labor cost incurred. But when the units of production increases in November, due significant high increase in the actual direct labor hours compare to increase in unit produced, the company has an unfavorable variance of $65,500.

Explanation of Solution

Explanation:

1.

Computation of Direct labor rate, efficiency and cost variance for the October month

 Direct Labor Rate Variance = Actual Hours X (Actual Rate  Standard Rate)                                            = 16,250 hours X ($15.20  $15.00)                                            = $3,250    Unfavorable*Actual Rate = Actual Direct Labor CostActual Hours                        = $247,00016,250 hours                         = $15.20 per hour

Direct Labor Efficiency Variance = Standard Rate X (Actual Quantity  Standard Quantity)                                                     = $15.00 X (16,250 hours  16,800 hours)                                                     = $8,250   Favorable *Standard Quantity = Standard hours allowed per unit X Units Produced                                = 3 hours per unit X 5,600 units                                 = 16,800 hours

Direct Labor Cost Variance = Direct Labor Rate Variance + Direct Labor Efficiency Variance                                            = $3,250 (U) + $8,250 (F)                                            = $5,000  Favorable

Computation of Direct labor rate, efficiency and cost variance for the November month

 Direct Labor Rate Variance = Actual Hours X (Actual Rate  Standard Rate)                                            = 22,000 hours X ($15.25  $15.00)                                            = $5,500    Unfavorable*Actual Rate = Actual Direct Labor CostActual Hours                        = $335,50022,000 hours                         = $15.25 per hour

Direct Labor Efficiency Variance = Standard Rate X (Actual Quantity  Standard Quantity)                                                     = $15.00 X (22,000 hours  18,000 hours)                                                     = $60,000   Unfavorable *Standard Quantity = Standard hours allowed per unit X Units Produced                                = 3 hours per unit X 6,000 units                                 = 18,000 hours

Direct Labor Cost Variance = Direct Labor Rate Variance + Direct Labor Efficiency Variance                                            = $5,500 (U) + $60,000 (U)                                            = $65,500  Unfavorable

2.

The direct labor rate variance occurs due to the difference between the standard rate per hour and actual rate per hour. If the actual rate is less than standard rate, the variance is considered as favorable and if the actual rate is more than the standard rate, the variance is considered as unfavorable.

The direct labor efficiency variance is the variance caused by the difference between the standard hours allowed and the actual hours of direct labor incurred. The favorability of the variance depends upon the fact that whether the actual hours is more than standard hours of direct labor. If the actual hours is more than the standard hours of direct labor, the variance is termed as unfavorable and vice-versa.

The direct labor cost variance is the combination of direct labor rate and efficiency variance. The variance indicates the overall difference between the actual labor cost and the expected labor cost.

Conclusion

In the month of October:

Direct labor rate variance = $3,250 Unfavorable

Direct labor efficiency variance = $8,250 Favorable

Direct labor cost variance = $5,000 Favorable

In the month of November:

Direct labor rate variance = $5,500 Unfavorable

Direct labor efficiency variance = $60,000 Unfavorable

Direct labor cost variance = $65,500 Unfavorable

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 23 Solutions

Fundamental Accounting Principles -Hardcover

Ch. 23 - Prob. 11DQCh. 23 - Prob. 12DQCh. 23 - Prob. 13DQCh. 23 - How can the manager of advertising sales at Google...Ch. 23 - Prob. 15DQCh. 23 - Prob. 16DQCh. 23 - Prob. 1QSCh. 23 - Prob. 2QSCh. 23 - Prob. 3QSCh. 23 - Prob. 4QSCh. 23 - Prob. 5QSCh. 23 - Prob. 6QSCh. 23 - Prob. 7QSCh. 23 - Prob. 8QSCh. 23 - Prob. 9QSCh. 23 - Prob. 10QSCh. 23 - Prob. 11QSCh. 23 - QS 23-12 Labor cost variances P2 Frontera...Ch. 23 - Prob. 13QSCh. 23 - Prob. 14QSCh. 23 - Volume variance P3 Refer to information in QS...Ch. 23 - Prob. 16QSCh. 23 - Preparing overhead entries P5 Refer to the...Ch. 23 - Prob. 18QSCh. 23 - Prob. 19QSCh. 23 - Prob. 20QSCh. 23 - Prob. 21QSCh. 23 - Prob. 1ECh. 23 - Prob. 2ECh. 23 - Prob. 3ECh. 23 - Exercise 23-4 Preparing a flexible budget...Ch. 23 - Prob. 5ECh. 23 - Prob. 6ECh. 23 - Exercise 23-7 Cost variances C2 Presented below...Ch. 23 - Prob. 8ECh. 23 - Prob. 9ECh. 23 - Prob. 10ECh. 23 - Prob. 11ECh. 23 - Prob. 12ECh. 23 - Prob. 13ECh. 23 - Prob. 14ECh. 23 - Prob. 15ECh. 23 - Prob. 16ECh. 23 - Prob. 17ECh. 23 - Prob. 18ECh. 23 - Prob. 19ECh. 23 - Prob. 20ECh. 23 - Prob. 21ECh. 23 - Prob. 22ECh. 23 - Prob. 23ECh. 23 - Prob. 1APSACh. 23 - Prob. 2APSACh. 23 - Prob. 3APSACh. 23 - Prob. 4APSACh. 23 - Prob. 5APSACh. 23 - Prob. 6APSACh. 23 - Prob. 1BPSBCh. 23 - Prob. 2BPSBCh. 23 - Problem 23-3B Flexible budget preparation;...Ch. 23 - Prob. 4BPSBCh. 23 - Prob. 5BPSBCh. 23 - Prob. 6BPSBCh. 23 - Prob. 23SPCh. 23 - Analysis of flexible budgets and standard costs...Ch. 23 - Prob. 2BTNCh. 23 - Selling materials, labor, and overhead standards...Ch. 23 - Prob. 4BTNCh. 23 - Prob. 5BTNCh. 23 - Prob. 6BTNCh. 23 - Prob. 7BTNCh. 23 - Prob. 8BTNCh. 23 - Prob. 9BTN
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY