SWC, Inc. uses standard costs to value its inventories. The standard cost of direct labor is $84 (6 hours @ $14 per hour). During the current month 92,000 hours were worked at an actual cost of $13.80 per hour. 15,000 finished units were produced. Calculate the direct labor variances.
a. Labor rate variance
1. What was the standard hourly rate (SR)?
2. What was the actual hourly rate (AR)?
3. What were the actual hours worked (AH)?
4. Using the equation (SR - AR)AH calculate the labor rate variance?
b. Labor efficiency Variance
1. What are the standard hours per unit? 2. How many units were produced?
3. How many hours should have been used (SH)?
4. What were the actual hours worked (AH)? 5. What is the standard hourly rate (SR)?
6. Using the equation (SH - AH)SR calculate material quantity variance?
DIAGRAMMATIC APPROACH FOR LABOR VARIANCES Labor Efficiency Variance Labor Rate Variance Total Variance $9,600 (U)
c. What might be some explanations for the above variances?