Page 131 - BA2 Integrated Workbook STUDENT 2018

Standard costing and variance analysis

2.3 Labour variances
Direct labour rate

variance
Direct labour total

variance
Direct labour
efficiency variance

Direct labour rate variance

The direct labour rate variance reveals how much of the direct labour total variance
was caused by paying a different rate per hour for the labour hours worked.

$
83,000 hours should have cost (× $10) 830,000
But did cost 845,000
———–
Direct labour rate variance $15,000 adverse
———–
Direct labour efficiency variance

The direct labour efficiency variance reveals how much of the direct labour total
variance was caused by using a different number of hours of labour, compared with
the standard allowance for the production achieved.
hours
2,100 units produced should have used (× 40 hours) 84,000
But did use 83,000
——–—
Variance in hours 1,000 favourable
——–—
× standard rate per hour ($10):
Direct labour efficiency variance $10,000 favourable
——–—

Direct labour total variance = $15,000 adverse + $10,000 favourable = $5,000
adverse

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