During December, 1,500 units of X were made and the cost of grade Z labour was $17,500 for 3,080 hours. A unit of product X is expected to use 2 hours of grade Z labour at a standard cost of $5 per labour hour. During the period, however, there was a shortage of customer orders and 100 hours were recorded as idle time.
Required:
Calculate the following variances.
(a) The total labour cost variance
(b) The labour rate variance
(c) The idle time variance
(d) The labour efficiency variance
(a) The total labour cost variance
= 1,500 units × $5 × 2 hours – $17,500
= $2,500 (A)
(b) The labour rate variance
= 3,080 hours × $5 – $17,500
= $2,100 (A)
(c) The idle time variance
= 100 hours × $5
= $500 (A)
(d) The labour efficiency variance
= [1,500 units × 2 hours – (3,080 hours – 100 hours)] × $5
= $100 (F)
Summary
$
Labour rate variance
2,100
(A)
Idle time variance
500
(A)
Labour efficiency variance
100
(F)
Total labour cost variance
2,500
(A)
Remember that, if idle time is recorded, the actual hours used in the efficiency variance calculation are the hours worked and not the hours paid for.
