Direct labor rate variance helps in comparing actual direct labor rate to the standard direct labor rate. It is the difference between the actual cost of labor and budget cost of labor. Direct labor efficiency variance helps in comparing direct labor hours to the standard labor hours. To calculate: The direct labor rate and efficiency variances.

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Chapter 9, Problem 7E

To determine

Direct labor rate variance helps in comparing actual direct labor rate to the standard direct labor rate. It is the difference between the actual cost of labor and budget cost of labor.

Direct labor efficiency variance helps in comparing direct labor hours to the standard labor hours.

To calculate:

The direct labor rate and efficiency variances.

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Computing and journalizing standard cost variances McKnight manufactures coffee mugs that it sells to other companies for customizing with their own logos. McKnight prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month: Direct Materials (0.2 lbs. @ $0.25 per Ib.) $ 0.05 Direct Labor (3 minutes @ $0.11 per minute) 0.33 Manufacturing Overhead: Variable (3 minutes @ $0.06 per minute) $ 0.18 Fixed (3 minutes @ $0.15 per minute) 0.45 0.63 Total Cost Per Coffee Mug $ 1.01 Actual cost and production information for July 2020 follow: а. Actual production and sales were 62,500 coffee mugs. b. Actual direct materials usage was 10,000 Ibs. at an actual cost of $0.17 per Ib. Actual direct labor usage of 198,000 minutes at a cost of $25,740. d. Actual overhead cost was $8,500 variable and $32,100 fixed. e. Selling and administrative costs were $110,000. C.