Lewis Company’s standard labor cost of producing one unit of Product DD is 3.20 hours at the rate of $12.50 per hour. During August, 42,600 hours of labor are incurred at a cost of $12.65 per hour to produce 13,200 units of Product DD. A. Compute the total labor variance.
B. Compute the labor price and quantity variances.
C. Compute the labor price and quantity variances, assuming the standard is 3.5 hours of direct labor at $12.85 per hour.

a. $10,890 Favorable

b. The labor price variance and quantity variance are $6,300 Favorable and $4,500 Favorable respectively.

c. The labor price and quantity variance is $8,520 Unfavorable and $46,260 Unfavorable respectively.

Explanation:

a. The computation of Total labor variance

= (Actual hours × Actual rate) - (Standard hours × Standard rate)

= (42,600 × $12.65) - ( 13,200 units × 3.2 × $12.5)

= $538,890 - $528,000

= $10,890F

b. The computation of the Labor price variance

= Actual hours × ( Actual rate - Standard rate)

= 42,600 × ( $12.65 - $12.5)

= 42,000 × $0.15

= $6,300 F

The computation of Labor quantity variance

= Standard rate × ( Actual hours - Standard hours)

= $12.5 per hour × ( 42,600 hours - 42,240 hours )

= $12.5 per hour × 360 hours

= $4,500 F

c. The computation of Labor price variance

= Actual hours × ( Actual rate - Standard rate)

= 42,600 × ( $12.65 - $12.85 )

= 42,600 × - $0.2

= $8,520 Unfavorable

The computation of Labor quantity variance

= Standard rate × ( Actual hours - Standard hours)

= $12.85 per unit × ( 42,600 hours - 46,200 hours)

= $12.85 per unit × - $3,600

= $46,260 Unfavorable.

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