The New Day Clothes Company produced 18,000 units during June of current year. The Cutting Department used 3,500 direct labor hours at an actual rate of $ 11.80 pre hour. The Sewing Department used 5,800 direct labor hours at an actual rate of $ 12.15 per hour. Assume there were no work in process inventories in either department at the beginning or end of the month. The standard labor rate is $12.00. The standard labor tine for the cutting and sewing departments is 0.19 hour and 0.33 per unit, respectively.
(a) Department the direct labor rate and time variance for the
(1) Cutting Department and
(2) Sewing Department
(b) Interpret your results.
 

(a)

(1)   Cutting Department

        Rate variance:

Direct Labor Rate Variance = (Actual Rate per Hour – Standard Rate per Hour)

                                                         × Actual Hours

Direct Labor Rate Variance = ($11.80 – $12.00) × 3,500 hrs.

Direct Labor Rate Variance = – $700 Favorable Variance

        Time variance:

Direct Labor Time Variance = (Actual Direct Labor Hours – Standard Direct

                                                         Labor Hours) × Standard Rate per Hour

Direct Labor Time Variance = (3,500 hrs. – 3,420 hrs.*) × $12.00 per hour

Direct Labor Time Variance = $960 Unfavorable Variance

*0.19 hr. × 18,000 units

        Total direct labor cost variance:

Direct Labor Cost Variance = Direct Labor Rate Variance + Direct Labor Time

                                                        Variance

Direct Labor Cost Variance = – $700 + $960

Direct Labor Cost Variance = $260 Unfavorable Variance

(2)   Sewing Department

        Rate variance:

Direct Labor Rate Variance = (Actual Rate per Hour – Standard Rate per Hour)

                                                         × Actual Hours

Direct Labor Rate Variance = ($12.15 – $12.00) × 5,800 hrs.

Direct Labor Rate Variance = $870 Unfavorable Variance

        Time variance:

Direct Labor Time Variance = (Actual Direct Labor Hours – Standard Direct

                                                         Labor Hours) × Standard Rate per Hour

Direct Labor Time Variance = (5,800 hrs. – 5,940 hrs.*) × $12.00 per hour

Direct Labor Time Variance = – $1,680 Favorable Variance

*0.33 hr. × 18,000 units

        Total direct labor cost variance:

Direct Labor Cost Variance = Direct Labor Rate Variance + Direct Labor Time

                                                        Variance

Direct Labor Cost Variance =  $870 – $1,680

Direct Labor Cost Variance = – $810 Favorable Variance

(b)   The two departments have opposite results. The Cutting Department has
a favorable rate and an unfavorable time variance, resulting in a total unfavorable cost variance of $260. In contrast, the Sewing Department has an
unfavorable rate variance, but has a very favorable time variance, resulting in a total favorable cost variance of $810. The causes of this disparity are worthy of investigation. There are many possible causes including tight or loose standards, inferior or superior operating methods, and inappropriate or appropriate use of overtime. Combining both departments, the overall operation shows a favorable cost variance of – $550 ($260 – $810), as a result of the strong performance in the Sewing Department.