From the course: Accounting Foundations: Managerial Accounting
Join today to access over 22,600 courses taught by industry experts or purchase this course individually.
Labor rate and efficiency variances
From the course: Accounting Foundations: Managerial Accounting
Labor rate and efficiency variances
- Typically when a standard cost system is being used in a manufacturing or service firm a direct labor rate variance and a direct labor efficiency variance are determined for employees directly involved in the creation of the organization's product or service. These variances are computed in a manner very similar to the materials price and quantity variances. We will now continue our boat manufacturing example to illustrate how labor variances are computed. Recall that the standard costs for the boat are as follows, for our boat the standard cost indicates that the standard direct labor rate per boat is 80 hours at $20 per hour. Actual labor used during the year to make 100 boats was 7,880 hours at an average rate of $20 and 50 cents per hour. It looks like we paid more for direct labor than we had planned. We can break this overall unfavorable variance down into its two parts, rate and efficiency. A labor rate variance…
Practice while you learn with exercise files
Download the files the instructor uses to teach the course. Follow along and learn by watching, listening and practicing.
Download courses and learn on the go
Watch courses on your mobile device without an internet connection. Download courses using your iOS or Android LinkedIn Learning app.