Week 7, LO 3 Demo

Week 7, LO 3 Demo - $13/hr. Gina wants to know the impact...

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Week 7: Standard Costs Week 7 Skill Building Demonstration Problem 3 Compute the direct labor rate and efficiency variances and explain their significance. Learning Objective 3 Rate Variance – Actual labor costs per hour are more/less than standard. Unfavorable rate variance might be caused by an unexpected wage increase. Labor rate variance = AH (AR-SR) Definitions Given: Gina Chang is the Operations Manager at a factory. The 10 employees that work for her worked at the standard rate of $10/hr for the total of 100hrs last week. The actual rate paid due union wage increase they received, changed the rate to
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Unformatted text preview: $13/hr. Gina wants to know the impact on her standard cost. What is the labor variance (assuming 120hrs is standard for the weekly level of output)? Problem Significance : The cost of labor was $300 greater than the standards explained by wage increase. However, the employees were able to produce the same level of output using less hours (20). The overall favorable means that the weeks production cost $100 more than the standards require. Solution...
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