Delmar Inc. uses a standard cost system. Labor standards are 2.0 hours per widget at $8.80 per hour. During August, Delmar Inc. paid its workers $147,250 for 16,500 hours. Delmar Inc. produced 8,600 widgets during August. a. Calculate the direct labor rate variance. (Do not round your intermediate calculations. Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i. e., zero variance).) b. Calculate the direct labor efficiency variance. (Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i. e., zero variance).)

Instructions are below.

Explanation:

Giving the following information:

Labor standards are 2.0 hours per widget at $8.80 per hour.

During August, Delmar Inc. paid its workers $147,250 for 16,500 hours.

Delmar Inc. produced 8,600 widgets during August

To calculate the direct labor rate and efficiency variance, we need to use the following formulas:

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

Direct labor time (efficiency) variance = (8,600*2 - 16,500) * 8.8

Direct labor time (efficiency) variance = (17,200 - 16,500) * 8.8

Direct labor time (efficiency) variance = $6,160 favorable

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

Actual rate = 147,250/16,500 = $8.92

Direct labor rate variance = (8.8 - 8.92) 16,500

Direct labor rate variance = $1,980 unfavorable