PE 23-2B direct labor variances

Dvorak Company produces a product that requires three standard hours per unit at a standard hourly rate of $17 per hour. If 1,000 units required 2,800 hours at an hourly rate of $16.50 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance?

Answer:

a. Direct labor rate 

variance (favorable) 

–$1,400 [($16.50 – $17.00) × 2,800 hrs.] 

 

b. 

 

Direct labor time 

variance (favorable) 

 

–$3,400 

 

[(2,800 hrs. – 3,000 hrs.) × $17.00] 

 

c. 

 

Direct labor cost 

 

–$4,800 

 

(–$1,400 – $3,400) or 

 variance (favorable)  [($16.50 × 2,800 hrs.) – ($17.00 × 3,000 hrs.)] 

   = $46,200 – $51,000