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Japan Company produces lamps that require 3 standard hours per unit at a standard hourly rate of $12.00 per hour. Production of 8,900 units required 26,170 hours at an hourly rate of $12.20 per hour. What is the direct labor

(a) rate variance,
(b) time variance, and
(c) total cost variance? Enter favorable variances as negative numbers.

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Answer:

(a) rate variance = $ 5,234, Adverse

(b) time variance = $ 6,360, Favourable

(c) total cost variance = $1,126, Favourable

Explanation:

(a) rate variance,

rate variance = (Standard Rate - Actual Rate) × Actual Hours

                      =( $12.00- $12.20) × 26,170 hours

                      = $ 5,234, Adverse

(b) time variance, and

time variance = (Standard Hours - Actual Hours) × Standard Rate

                       = (26,700 hours - 26,170 hours) ×  $12.00

                     = $ 6,360, Favourable

(c) total cost variance

total cost variance = rate variance + time variance

                               = $ 5,234, Adverse + $ 6,360, Favourable

                               = $1,126, Favourable

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