Malbasa Tax Services prepares tax returns for senior citizens. The standard in terms of (direct labor) time spent on each return is 4 hours. The direct labor standard wage rate at the firm is $ 16.50 per hour. Last month, 3,570 direct labor hours were used to prepare 900 tax returns. Total wages were $ 66,045.

Compute and evaluate direct labor variances

Requirements

a. What is the actual (direct labor) wage rate per hour paid last month?

b. What is the direct labor rate variance?

c. What is the direct labor efficiency variance?

d. How might the direct labor rate variance for the firm last month be causing the direct labor efficiency variance?

a) Actual (direct labor) wage rate per hour paid last month $18.5

b) Direct labor rate variance $7140 Unfavorable

c) Direct labor Efficiency variance=$ 495 Favorable

d) So when the Direct labor rate variance is Unfavorable Direct labor Efficiency variance is usually Favorable.

Explanation:

Malbasa Tax Services

Given

The standard (direct labor) time 4 hours per return

The direct labor standard wage rate $ 16.50 per hour

The standard (direct labor) time allowed for 900 tax returns

= 4 hours * 900 = 3600 hours

The direct labor standard wage rate for 3600 hours

= $ 16.50 * 3600 = $59,400

Actual direct labor hours used 3,570

Actual Total wages were $ 66,045

a) Actual (direct labor) wage rate per hour paid last month = Actual Total wages/Actual direct labor hours = $ 66,045/3,570 = $18.5

b) Direct labor rate variance = (actual hours) * (actual rate - standard rate)

Direct labor rate variance = 3,570 * ($18.5 - $16.5)

Direct labor rate variance = 3,570 * $2 = $7140 Unfavorable as actual rate is higher than standard rate.

c) Direct labor Efficiency variance=standard rate * (actual hours) - (standard hours)

Direct labor Efficiency variance = $ 16.5 (3570-3600) = $16.5 * (30) = $ 495 Favorable as actual hours are less than standard hours.

d) The direct labor rate variance is causing the direct labor efficiency variance because when the workers are paid higher they tend to perform better and do the work more quickly. So when the Direct labor rate variance is Unfavorable Direct labor Efficiency variance is usually Favorable.