Earl Company's direct labor costs for the month of January follow: Actual direct labor hours 18,000 Standard direct labor hours 19,000 Direct labor rate variance--unfavorable $ 2,160 Total payroll $117,000 What was Earl's direct labor efficiency variance?

Question

Business

Rachael Villa

31 May, 09:33

Earl Company's direct labor costs for the month of January follow: Actual direct labor hours 18,000 Standard direct labor hours 19,000 Direct labor rate variance--unfavorable $ 2,160 Total payroll $117,000 What was Earl's direct labor efficiency variance?

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Answers (1)

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Judah Preston · Answer 1

Direct labor efficiency variance = 6,380 favorable

Explanation:

Giving the following information:

Actual direct labor hours = 18,000

Standard direct labor hours = 19,000

Direct labor rate variance = unfavorable $ 2,160

Total payroll $117,000

First, we need to calculate the standard rate using the direct labor rate variance formula:

Direct labor rate variance = (Standard Rate - Actual Rate) * Actual Quantity

-2,160 = (SR - 117,000/18,000) * 18,000

-2,160 = (SR - 6.5) * 18,000

-0.12 = SR - 6.5

6.38 = Standard rate

Now, we can calculate the direct labor efficiency variance

Direct labor efficiency variance = (Standard Quantity - Actual Quantity) * standard rate

Direct labor efficiency variance = (19,000 - 18,000) * 6.38

Direct labor efficiency variance = 6,380 favorable