Given the following information, calculate the direct labour rate variance.
Actual direct labour hours
34 500
Standard direct labour hours
35 000
Actual direct labour rate
$ 6.65
Direct labour efficiency variance (F)
$ 3 200
****Enter a negative number if you have a Favourable variance and a positive number if you have an Unfavourable variance.
The correct answer and explanation is:
To calculate the Direct Labour Rate Variance, use the formula: Direct Labour Rate Variance=(Actual Rate−Standard Rate)×Actual Hours Worked\text{Direct Labour Rate Variance} = (\text{Actual Rate} – \text{Standard Rate}) \times \text{Actual Hours Worked}
Given Data:
- Actual Direct Labour Hours = 34,500
- Standard Direct Labour Hours = 35,000
- Actual Direct Labour Rate = $6.65
- Direct Labour Efficiency Variance (F) = $3,200
- Direct Labour Efficiency Variance Formula:
Efficiency Variance=(Standard Hours for Actual Output−Actual Hours)×Standard Rate\text{Efficiency Variance} = (\text{Standard Hours for Actual Output} – \text{Actual Hours}) \times \text{Standard Rate}
Step 1: Find the Standard Direct Labour Rate
From the Direct Labour Efficiency Variance formula: 3,200=(35,000−34,500)×Standard Rate3,200 = (35,000 – 34,500) \times \text{Standard Rate} 3,200=500×Standard Rate3,200 = 500 \times \text{Standard Rate} Standard Rate=3,200500=6.40\text{Standard Rate} = \frac{3,200}{500} = 6.40
Step 2: Calculate the Direct Labour Rate Variance
Using the Direct Labour Rate Variance formula: Direct Labour Rate Variance=(Actual Rate−Standard Rate)×Actual Hours Worked\text{Direct Labour Rate Variance} = (\text{Actual Rate} – \text{Standard Rate}) \times \text{Actual Hours Worked} Direct Labour Rate Variance=(6.65−6.40)×34,500\text{Direct Labour Rate Variance} = (6.65 – 6.40) \times 34,500 Direct Labour Rate Variance=0.25×34,500=8,625\text{Direct Labour Rate Variance} = 0.25 \times 34,500 = 8,625
Final Answer:
Direct Labour Rate Variance = $8,625 (Unfavourable)
Explanation:
The Direct Labour Rate Variance quantifies the cost impact of the difference between the actual and standard labour rates, multiplied by the actual hours worked. Here, the actual labour rate ($6.65) was higher than the standard labour rate ($6.40), resulting in an unfavourable variance. This variance indicates higher costs due to a higher actual hourly rate than anticipated.