PE 23-2A direct labor variances

Giovanni Company produces a product that requires five standard hours per unit at a standard hourly rate of $30 per hour. If 3,500 units required 17,700 hours at an hourly rate of $30.50 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance?

Answer:

a. Direct labor rate 

variance (unfavorable) 

$8,850 [($30.50 – $30.00) × 17,700 hrs.] 

b. Direct labor time 

variance (unfavorable) 

$6,000 [(17,700 hrs. – 17,500 hrs.) × $30.00] 

c. 

 

Direct labor cost 

variance (unfavorable) 

 

$14,850 

 

($8,850 + $6,000) or 

[($30.50 × 17,700 hrs.) – ($30.00 × 17,500 hrs.)] 

= $539,850 – $525,000