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5 March, 04:55

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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  1. 5 March, 07:49
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    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
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