Question
Direct labor variances
Alvarado Company produces a product that requires 3 standard direct labor hours per unit at a standard hourly rate of $21.00 per hour. 16,000 units used 61,000 hours at an hourly rate of $19.95 per hour.
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
What is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? Round your answers to the nearest dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
Line Item Description Amount Variance
a. Direct labor rate variance $fill in the blank 2
b. Direct labor time variance $fill in the blank 4
c. Direct labor cost variance $fill in the blank 6
Alvarado Company produces a product that requires 3 standard direct labor hours per unit at a standard hourly rate of $21.00 per hour. 16,000 units used 61,000 hours at an hourly rate of $19.95 per hour.
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
What is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? Round your answers to the nearest dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
Line Item Description Amount Variance
a. Direct labor rate variance $fill in the blank 2
b. Direct labor time variance $fill in the blank 4
c. Direct labor cost variance $fill in the blank 6
Answers
GPT-4o mini
To calculate the direct labor variances, we can start with the information provided:
- Standard direct labor hours per unit = 3 hours
- Standard hourly rate = $21.00
- Actual units produced = 16,000 units
- Actual hours worked = 61,000 hours
- Actual hourly rate = $19.95
**1. Direct Labor Rate Variance:**
The direct labor rate variance measures the difference between what was paid for direct labor and what should have been paid.
\[
\text{Direct Labor Rate Variance} = ( \text{Actual Hourly Rate} - \text{Standard Hourly Rate} ) \times \text{Actual Hours Worked}
\]
\[
\text{Direct Labor Rate Variance} = (19.95 - 21.00) \times 61,000
\]
\[
= -1.05 \times 61,000 = -64,050
\]
Since we are looking to enter a favorable variance as a negative number, the direct labor rate variance is **$-64,050.**
**2. Direct Labor Time Variance:**
The direct labor time variance measures the difference between the actual hours worked and the standard hours allowed for the actual production.
\[
\text{Standard Hours Allowed} = \text{Units Produced} \times \text{Standard Hours per Unit}
\]
\[
\text{Standard Hours Allowed} = 16,000 \times 3 = 48,000 \text{ hours}
\]
Now we calculate the time variance:
\[
\text{Direct Labor Time Variance} = ( \text{Actual Hours Worked} - \text{Standard Hours Allowed} ) \times \text{Standard Hourly Rate}
\]
\[
\text{Direct Labor Time Variance} = (61,000 - 48,000) \times 21.00
\]
\[
= 13,000 \times 21.00 = 273,000
\]
The direct labor time variance is **$273,000.** (This is unfavorable because we worked more hours than allowed.)
**3. Direct Labor Cost Variance:**
The direct labor cost variance combines the effects of both the rate and time variances and calculates the total variance in direct labor costs.
\[
\text{Direct Labor Cost Variance} = \text{Direct Labor Rate Variance} + \text{Direct Labor Time Variance}
\]
\[
= -64,050 + 273,000 = 208,950
\]
The direct labor cost variance is **$208,950.** (This is also unfavorable.)
To summarize the calculations:
- a. Direct labor rate variance = **$-64,050**
- b. Direct labor time variance = **$273,000**
- c. Direct labor cost variance = **$208,950**
Your filled in answers would be:
- a. **$-64,050**
- b. **$273,000**
- c. **$208,950**
- Standard direct labor hours per unit = 3 hours
- Standard hourly rate = $21.00
- Actual units produced = 16,000 units
- Actual hours worked = 61,000 hours
- Actual hourly rate = $19.95
**1. Direct Labor Rate Variance:**
The direct labor rate variance measures the difference between what was paid for direct labor and what should have been paid.
\[
\text{Direct Labor Rate Variance} = ( \text{Actual Hourly Rate} - \text{Standard Hourly Rate} ) \times \text{Actual Hours Worked}
\]
\[
\text{Direct Labor Rate Variance} = (19.95 - 21.00) \times 61,000
\]
\[
= -1.05 \times 61,000 = -64,050
\]
Since we are looking to enter a favorable variance as a negative number, the direct labor rate variance is **$-64,050.**
**2. Direct Labor Time Variance:**
The direct labor time variance measures the difference between the actual hours worked and the standard hours allowed for the actual production.
\[
\text{Standard Hours Allowed} = \text{Units Produced} \times \text{Standard Hours per Unit}
\]
\[
\text{Standard Hours Allowed} = 16,000 \times 3 = 48,000 \text{ hours}
\]
Now we calculate the time variance:
\[
\text{Direct Labor Time Variance} = ( \text{Actual Hours Worked} - \text{Standard Hours Allowed} ) \times \text{Standard Hourly Rate}
\]
\[
\text{Direct Labor Time Variance} = (61,000 - 48,000) \times 21.00
\]
\[
= 13,000 \times 21.00 = 273,000
\]
The direct labor time variance is **$273,000.** (This is unfavorable because we worked more hours than allowed.)
**3. Direct Labor Cost Variance:**
The direct labor cost variance combines the effects of both the rate and time variances and calculates the total variance in direct labor costs.
\[
\text{Direct Labor Cost Variance} = \text{Direct Labor Rate Variance} + \text{Direct Labor Time Variance}
\]
\[
= -64,050 + 273,000 = 208,950
\]
The direct labor cost variance is **$208,950.** (This is also unfavorable.)
To summarize the calculations:
- a. Direct labor rate variance = **$-64,050**
- b. Direct labor time variance = **$273,000**
- c. Direct labor cost variance = **$208,950**
Your filled in answers would be:
- a. **$-64,050**
- b. **$273,000**
- c. **$208,950**