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

Exercise 55

Labor Rate and Efficiency Variances Keck Company’s direct labor costs to manufacture its only product in October follow:

Standard direct labor hours per unit of product	1.5
Number of finished units produced	10,000
Standard wage rate per direct labor hour	$16
Total payroll for direct labor	$207,000
Wage paid per direct labor hour	$18

Differences in hourly wage rates reflect skill levels of workers.

Required Determine the following for October:

1. Direct labor rate variance.

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2. Direct labor efficiency variance.

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3. Production manager’s performance in managing direct labor costs.

Step 1 of 8

Variance and budget v/s variance:

In costing, variance is a difference occurred between planned, standard or budgeted cost and the actual cost incurred. These variances can be for both cost and revenue. These variances can be favourable or unfavourable.