The following data relate to labor cost for production of 5,500 cellular telephones:

(a)   Rate variance:

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

                                                         × Actual Hours

Direct Labor Rate Variance = ($16.40 – $16.70) × 3,450 hrs.

Direct Labor Rate Variance = – $1,035 Favorable Variance

        Time variance:

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

                                                         Labor Hours) × Standard Rate per Hour

Direct Labor Time Variance = (3,450 hrs – 3,390 hrs.) × $16.70 per hour

Direct Labor Time Variance = $1,002 Unfavorable Variance                                                               

Total direct labor cost variance:

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

                                                        Variance

Direct Labor Cost Variance = – $1,035 + $1,002

Direct Labor Cost Variance = – $33 Favorable Variance

(b)   The employees may have been less experienced or poorly trained, thereby resulting in a lower labor rate than planned. The lower level of experience or training may have resulted in less efficient performance. Thus, the actual time required was more than standard. Fortunately, the lost efficiency is offset by the lower labor rate.