Direct labor variances solving for unknowns Coastal Industries
Coastal Industries has established direct labor performance standards for its maintenance and repair shop. However, some of the labor records were destroyed during a recent fire. The actual hours worked during March were 4,000, and the total direct labor budget variance was $2,200 unfavorable. The standard labor rate was $18 per hour, but recent resignations allowed the firm to hire lower-paid replacement workers for some jobs, and this produced a favorable rate variance of $3,200 for March.
a. Calculate the actual direct labor rate paid per hour during March.
b. Calculate the dollar amount of the direct labor efficiency variance for March.
c. Calculate the standard direct labor hours allowed for the actual level of activity during March. (Hint: Use the formula for the quantity variance and solve for the missing information.)
a. Actual labor rate is only used in the rate variance (not the efficiency variance). So, you study the missing pieces for that variance.
Labor cost - hours worked x standard rate = rate variance
4,000 x ...
Your tutorial gives you a strategy for isolating and solving for the unknowns.