Question

E13-24 Direct labor variances Death Valley Bicycle Company manufactures mountain bikes. The following data for Octo- ber of the current year are available: Quantity of direct labor used 1,100 hrs. Actual rate for direct labor $18.50 per hr. Bicycles completed in October 350 Standard direct labor per bicycle 3 hrs. Standard rate for direct labor $19.00 per hr. Planned bicycles for October 375 Determine the direct labor rate and time variances.

Answer 1

Based on the information available, we can calculate the following for Death Valley Bicycle company:-

a.) Direct Labor Rate variance

Direct labor rate variance = (Actual Rate - Standard Rate) * Actual Hours worked

Direct Labor rate variance = ($18.50 - $19) * 1100

Direct Labor Rate variance = $0.5 * 1100

Direct Labor Rate variance = $550

Because the actual rate of direct labor is lesser than the standard rate of direct labor, there is a favorable variance.

Hence, Direct Labor Rate variance = $550 Favorable.

b.) Direct labor time variance

Direct Labor time variance = (Actual Hours - Standard hours) * Standard Rate per hour

Standard hours for actual output = 3 hours * 350 units = 1,050 hours

Direct Labor time variance = (1,100 hours - 1,050 hours) * 19 per hour

Direct Labor time variance = 50 hours * 19 per hour

Direct Labor time variance = $950

Because the actual hours spent is higher than the standard hours allowed, there is an unfavorable time variance.

Direct Labor time variance = $950 Unfavorable.