Direct labor variances

The following data are for last month’s production:

  • Number of suits completed (as before) 5,000 units
  • Cost of direct labor (10,500 hrs. @ $20) $210,000

Using these data and the data from the standard cost card, the labor rate and efficiency variances are:

  • 5,000 suits ´ 2.0 hours per suit = 10,000 hours.

F = Favorable

U = Unfavorable

The direct labor variances can also be computed as follows:

LABOR RATE VARIANCE:

LRV = AH (AR — SR)

= 10,500 hrs. ($20/hr. — $18 per hr.) = $21,000 U

LABOR EFFICIENCY VARIANCE:

LEV = SR (AH — SH)

= $18 per hr. (10,500 hrs. — 10,000 hrs.) = $9,000 U