Question

variance analysis:

Newsom Footwear Corporation sold 18,000 units of products last month. The company’s standard costing system shows that one unit of production requires 0.5 direct labor hour and the standard labor rate is $10 per hour. The actual direct labor hours used last month for the production of the 18,000 units were 9,200 DLHs. The actual labor rate was $9.5 per hour. Required: Break down the spending variance for direct labor to the labor efficiency variance and labor rate variance by completing the following schedule.

(a) First, put standard hours (SH), standard rate (SR), actual hours (AH), and actual rate (AR) on the appropriate lines.

(b) Next, calculate the dollar values for the three multiplications in the three boxes.

(c) Calculate the two variances as well as the total spending variance and indicate whether they are favorable (F) or unfavorable (U).

---------------------

(a) _____ × _____ _____ × _____ _____ × _____

(b)

(c) Labor efficiency variance = $___________ F / U Labor rate variance = $__________ F / U Total spending variance = $__________ F / U

Answer 1

Answer

• Requirement [a]and [b]

Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH	x	SR
9,200	x	$                  9.50		9,200	x	$    10.00		9,000	x	$              10.00
	$             87,400.00				$        92,000.00				$             90,000.00

• Requirement [c]

Labor Efficiency Variance	$         2,000.00	Unfavourable
Labor Rate Variance	$         4,600.00	Favourable
Total Labor Cost [Spending] Variance	$         2,600.00	Favourable