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1 April, 10:19

The records of Norton, Inc. show the following for July: Standard labor-hours allowed per unit of output 2.0 Standard variable overhead rate per standard direct labor-hour $ 35 Good units produced 60,000 Actual direct labor-hours worked 121,000 Actual total direct labor $ 5,551,000 Direct labor efficiency variance $ 45,000 U Actual variable overhead $ 4,041,000 Required: Compute the direct labor and variable overhead price and efficiency variances.

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  1. 1 April, 12:31
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    (a) $106,000 Unfavorable

    (b) $194,000 Favorable

    (c) $35,000 Unfavorable

    Explanation:

    Given that,

    Standard labor-hours allowed per unit of output = 2.0

    Standard variable overhead rate per standard direct labor-hour = $ 35

    Good units produced = 60,000

    Actual direct labor-hours worked = 121,000

    Actual total direct labor = $ 5,551,000

    Direct labor efficiency variance = $45,000 U

    Actual variable overhead = $4,041,000

    Firstly, we need to calculate the standard rate. It is calculated by using the formula for Direct labor efficiency variance:

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

    -$45,000 = (Standard hour * - Actual hour) * Standard rate

    -$45,000 = (120,000 - 121,000) * Standard rate

    ($45,000 : 1,000) = Standard rate

    $45 = Standard rate

    *Standard hours:

    = Standard labor-hours allowed per unit of output * No. of units produced

    = 2 * 60,000

    = 120,000

    (a) The direct labor rate variance is calculated by the following formula:

    = (Standard rate * Actual direct labor-hours worked) - Actual total direct labor

    = ($45 * 121,000) - $ 5,551,000

    = $5,445,000 - $5,551,000

    = $106,000 Unfavorable

    (b) The variable overhead rate variance is calculated by the formula below:

    = (Standard variable overhead rate per standard direct labor-hour * Actual direct labor-hours worked) - Actual variable overhead

    = ($35 * 121,000) - $4,041,000

    = $4,235,000 - $4,041,000

    = $194,000 Favorable

    (c) The Variable overhead efficiency variance is calculated by the following formula:

    = (Standard hours - Actual direct labor-hours worked) * Standard Variable Overhead rate per hour

    = (120,000 - 121,000) * $35

    = $35,000 Unfavorable
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