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Home/ Questions/Compute the direct labor cost variance, including its rate and efficiency variances.
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lizawr
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lizawr
Asked: April 11, 20222022-04-11T19:01:27+00:00 2022-04-11T19:01:27+00:00In: Accounting

Compute the direct labor cost variance, including its rate and efficiency variances.

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2. Compute the direct labor cost variance, including its rate and efficiency variances. Standard Cost Actual...

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2. Compute the direct labor cost variance, including its rate and efficiency variances. Standard Cost Actual...

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2. Compute the direct labor cost variance, including its rate and efficiency variances. Standard Cost Actual...

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..8..

2. Compute the direct labor cost variance, including its rate and efficiency variances. Standard Cost Actual...

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2. Compute the direct labor cost variance, including its rate and efficiency variances. Standard Cost Actual...


♦ Relevant knowledge
Accounting Variance: Accounting professionals and other professionals from the business world utilize variances to accommodate inevitable budgetary changes, specifically in expenditure. Variances occur when an actual cost differs from the average expense that was planned for. There are two kinds of variances. Favorable variances are when an organization is able to pay less on something than scheduled. Variances that are not favorable occur when an organization is required to pay more for something than scheduled. These types of variances may be seen in materials, labor or overhead budgets.

A labor variation occurs when the cost of labor to manufacture products is different from the normal or projected cost of labor. There are three major types of variance in labor. The variance in the price of labor is determined by subtracting the actual rate of pay from the budgeted standard rate, then multiplying that by the actual number of hours worked. The variance in the labor quantity can be determined when you multiply the rate of the normal by the variance between the budgeted hours against the actual hours budgeted. The entire direct variation in the labor rate is determined using the normal rate multiplied by the average number of hours, and then subtracting the sum from the rate that is actually paid and also the amount of hours.

labor cost variance
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    William Jones
    2022-04-11T19:01:30+00:00Added an answer on April 11, 2022 at 7:01 pm

    Solution 1:

    Direct Material Cost Variance
    Actual Cost   Standard cost for actual quantity     Standard Cost
    *AQ AP =       *AQ SP =       *SQ SP =  
    1499000 $6.30 $9,443,700.00     1499000 $5.10 $7,644,900.00     1512000 $5.10 $7,711,200.00
      $1,798,800.00 U       $66,300.00 F      
          Variation in the Direct Material Prices       Variation in the Direct Material Quantity      
    Direct material price variance $1,798,800.00 U            
    Direct material quantity variance $66,300.00 F            
    Direct material cost variance $1,732,500.00 U            

    Solution 2:

    Direct Labor Cost Variance
    Actual Cost     Standard cost for actual quantity     Standard Cost
    *AH AR =       *AH SR =       SH * SR =  
    299400 $12.50 $3,742,500.00     299400 $15.00 $4,491,000.00     302400 $15.00 $4,536,000.00
      $748,500.00 F       $45,000.00 F      
          Variance in the direct labor rate       Direct Labor Efficiency Variance      
    Direct Labor Rate variance $748,500.00 F            
    Direct Labor Efficiency variance $45,000.00 F            
    Direct labor cost variance $793,500.00 F            

    Solution 3:

    Controllable Variance
    Actual overhead $5,043,200.00  
    Budgeted overhead $5,073,600.00  
         
    Controllable variance $30,400.00 F
    Fixed overhead volume variance
    Fixed overhead budgeted $2,956,800.00  
    Fixed overhead costs applied $3,326,400.00  
         
    Fixed overhead volume variance $369,600.00 F
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