Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 49

Standard Labor Rate and Labor Efficiency Variance Elof’s direct labor costs for the month of January follow:

Direct labor hourly rate paid	$30.00
Total standard direct labor hours for units produced this period	12,000
Direct labor hours worked	11,000
Direct labor rate variance	$33,000	favorable

Required Compute these:

1. Standard direct labor wage rate per hour in January.

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2. Direct labor efficiency variance.

Step 1 of 3

Direct labor rate variance is change in operating income caused by difference in actual labor rate and budgeted labor rate for actual labor hours invested. Direct labor efficiency variance is change in operating income caused by difference in actual labor hour and budgeted labor hour for budgeted labor rate. F signifies that the result is favorable and U signifies that result is unfavorable.