Labour variances calculation : favorable or unfavorable

Direct Labor Rate Variance:

The direct labor rate variance measures the difference between the actual hourly rate paid to production employees and the standard rate. It is calculated using the formula:

Direct Labor Rate Variance = (Actual Rate – Standard Rate) x Actual Hours

In this case, the standard rate is $9 per hour. The actual rate paid to production employees is not given, so we cannot calculate the direct labor rate variance without this information.

Direct Labor Time Variance:

The direct labor time variance measures the difference between the actual hours worked and the standard hours allowed for production. It is calculated using the formula:

Direct Labor Time Variance = (Actual Hours – Standard Hours) x Standard Rate

The standard hours allowed for production can be calculated by multiplying the number of lamps produced by the standard time per lamp. In this case, the standard time per lamp is 0.75 hours, and the number of lamps produced is 6,700.

Standard Hours = Number of Lamps Produced x Standard Time per Lamp
Standard Hours = 6,700 lamps x 0.75 hours
Standard Hours = 5,025 hours

Now we can calculate the direct labor time variance:

Direct Labor Time Variance = (5,000 hours – 5,025 hours) x $9
Direct Labor Time Variance = -25 hours x $9
Direct Labor Time Variance = -$225 (unfavorable)

The negative value indicates that the actual hours worked were less than the standard hours allowed, resulting in lost productivity and an unfavorable variance.

Direct Labor Cost Variance:

The direct labor cost variance measures the difference between the actual cost of labor and the standard cost of labor. It is calculated using the formula:

Direct Labor Cost Variance = (Actual Hours x Actual Rate) – (Standard Hours x Standard Rate)

Since we are given that the company incurred 5,000 direct labor hours at a cost of $47,500, we can calculate the actual rate by dividing the total cost by the total hours:

Actual Rate = Total Cost / Total Hours
Actual Rate = $47,500 / 5,000
Actual Rate = $9.50

Now we can calculate the direct labor cost variance:

Direct Labor Cost Variance = (5,000 hours x $9.50) – (5,025 hours x $9)
Direct Labor Cost Variance = $47,500 – $45,225
Direct Labor Cost Variance = $2,275 (favorable)

The positive value indicates that the actual cost of labor was lower than the standard cost of labor, resulting in cost savings and a favorable variance.

To summarize:
(A) Direct labor rate variance: Cannot be calculated without information on the actual rate paid to production employees.
(B) Direct labor time variance: -$225 (unfavorable)
(C) Direct labor cost variance: $2,275 (favorable)