Calculating the Direct Labor Rate Variance and the Direct Labor Efficiency Variance

Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 30 minutes and 6.2 quarts of oil are used. In June, Guillermo's Oil and Lube had 960 oil changes.

Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June: Actual number of oil changes performed: 960 Actual number of direct labor hours worked: 472 hours Actual rate paid per direct labor hour: $14.50 Standard rate per direct labor hour: $14.00

Required:

If required, round your answers to the nearest cent.

1. Calculate the direct labor rate variance (LRV) and the direct labor efficiency variance (LEV) for June using the formula approach.

Direct labor rate variance (LRV)	$_________	Favorable or Unfavorable
Direct labor efficiency variance (LEV)	$_________	Favorable or Unfavorable

2. Calculate the total direct labor variance for oil changes for June. $________ Favorable or Unfavorable

3. What if the actual wage rate paid in June was $13.50? What impact would that have had on the direct labor rate variance (LRV)? On the direct labor efficiency variance (LEV)? Indicate what the new variances would be below.

Direct labor rate variance (LRV): $_________ Favorable or Unfavorable

Direct labor efficiency variance (LEV): $_______ Favorable or Unfavorable