Question

Racer Oil perfoms oil changes. The standard wage rate for eil change technicians is $13 per hour. By analyzing its past records of time spent on oil changes, the company has developed a standard of 18 minutes (or 0.30 hours) per ol change. In July, 1,400 oil changes were performed at Racer Oil. Oil change technicians worked a total of 300 direct labor hours at an average rate of $22 per hour Read the requirements Requirement 1. Calculate the direct labor rate variance. Determine the formula for the rate variancn, then compute the rate variance for the direct labor (Enter the result as a positive number. Label the variance as favorable (F) or unfavorable (U) Enter the curency amount in the formula to the nearest cer, then round the final varianoe amount to the nearest whole dollar. Abbreviations used DL Direct labor.) OL rate variance x( Requirement 2. Caloulate the direct labor efficiency variance Detemine the formula for the efficiency variance, then compute the efficiency vanance for the direct labor. (Enter the result as a positive number Label the variance as favorable (F) or unfavorable (U). Enter the currency amount in the formula to the nearest cent, then round the final variance amount to the nearest whole dollar. Abbreviations used: DL Direct labor.) DL eficiency variance x(

Answer 1

Actual labor hours worked x (Standard rate per hour - Actual rate per hour) 300 hours x ($13 - $22) $2,700 Unfavorable 1) DL rate variance It is considered as unfavorable variance because actual rate per hour is more than standard rate per hour. 2) Standard rate per hour x (Standard hours required (or allowed) Actual labor hours worked) DL efficiency variance $13 x (420 300) $1,560 Unfavorable It is considered as favorable variance because actual hours worked is less than standard hours required (or allowed) for actual units produced NOTE: Standard hours required (or allowed) = 1,400 oil changes x 0.30 hours 420 hours.