Paradise Corp. has determined a standard labor cost per unit of $12 (1 hour * $12 per hour). Last month, Paradise incurred 1,900 direct labor hours for which it paid $21,850. The company also produced and sold 1,950 units during the month. Calculate the direct labor rate, efficiency, and spending variances.

Question

Business

Lexie Small

22 January, 07:30

Paradise Corp. has determined a standard labor cost per unit of $12 (1 hour * $12 per hour). Last month, Paradise incurred 1,900 direct labor hours for which it paid $21,850. The company also produced and sold 1,950 units during the month. Calculate the direct labor rate, efficiency, and spending variances.

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Answers (1)

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Trevor Faulkner · Answer 1

Direct Labor Rate Variance = $950

Direct Labor Efficiency Variance = $600

Total Direct Labor Spending Variance = $1,550

Explanation:

Data provided in the question:

Standard labor cost per unit = $12

Direct labor hours = 1,900

Actual Direct labor paid = $21,850

Units sold during the month = 1,950

Standard rate, SR = $12

Now,

Actual rate per unit, AR = $21,850 : 1,900

= $11.5

Direct Labor Rate Variance = (SR - AR) * Actual hours

= ($12 - $11.5) * 1900

= $950 (Favourable)

Direct Labor Efficiency Variance = (Standard hours - Actual hour) * SR

= (1950 - 1900) * $12

= $600 (favourable)

Total Direct Labor Spending Variance = Standard cost - actual cost

= (1950 * 12) - 21,850

= $1,550 (favourable)