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Labor Cost Variance Analysis Guide

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bunnariyaset
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8 views1 page

Labor Cost Variance Analysis Guide

Uploaded by

bunnariyaset
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as TXT, PDF, TXT or read online on Scribd

Let’s go through the exercise step by step.

1. Direct Labor Cost for 20,000 Units

• Standard Hours per Unit: 18 minutes = 0.3 hours


• Standard Rate per Hour: $12.00
• Total Units Produced: 20,000 units

Standard Direct Labor Hours Required:




Standard Direct Labor Cost:




Actual Direct Labor Cost Incurred:




Difference (Variance):


2. Breakdown into Labor Rate and Labor Efficiency Variance

• Labor Rate Variance:






• Labor Efficiency Variance:




3. Variable Manufacturing Overhead Variances

• Budgeted Overhead Rate: $4 per direct labor hour


• Actual Overhead Cost Incurred: $21,850
• Standard Variable Overhead:


• Variable Overhead Spending Variance:


• Variable Overhead Efficiency Variance:



Summary:

1. Direct Labor Cost Variance: $1,600 (unfavorable)


2. Labor Rate Variance: $4,600 (unfavorable)
Labor Efficiency Variance: $3,000 (favorable)
3. Variable Overhead Rate Variance: $1,150 (favorable)
Variable Overhead Efficiency Variance: $1,000 (favorable)

These results show that the company experienced unfavorable variances in labor rate
but compensated with favorable variances in efficiency and overhead spending.

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