Labor Variances Actual Hours of Input Actual Hours of Input Standard Hours Allowed for Output at the Actual Rate at the Standard Rate at the Standard Rate (AH X AR) (AH X SR) (SH x SR) 2,500 h * $4.2 - $10,500 2,500 h * $3,75 - $9,375 2,000 * x 53.75 - $7,500 Rate Variance, S1,125 (U) Efficiency Variance, $1.875 (U) Total Variance, $3,000 (U) *1,000 toys x 2 hours (h) - 2,000 hours Fig. 7-13 Alternatively: Labor rate variance = (2,500 hours)($4.2 - $3.75) = $10,500 - $9.375 = $1,125 (U) Labor efficiency variance = (2,500 hours - 2,000 hours)($3.75) = $1,875 (U) h23 7.12 The Schock Manufacturing Company uses a standard cost system. The standards are set before January 1 each year and remain unchanged until December 31. The standard costs set for the next year are: Direct materials $10.00 per unit Direct labor 7.50 per unit Overhead 6.00 per unit The labor standard above includes a methods change from 2 hours to 12 hours per unit, effective February 28, and a change in labor rates from $4.00 to $5.00 per hour effective February 28. Overhead will be applied on the basis of standard labor hours. The standard overhead rate per hour is $4.00 (1/2 hours X $4.00 = $6.00 per unit). The variable portion is $2.00 per hour. The original budgeted production volume for January was 5,000 units. The actual cost data for January are: Units produced 6,000 units Direct materials used $62,000 Direct labor 11.000 hours costing $46,000 Actual overhead incurred: Variable $23,000 Fixed $14,000 1. Compute the variances for direct labor and variable overhead. 2. State the possible causes of each variance which you have computed