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A. The journal entry below: Work in Process 25,000 ; Labor Efficiency Variance 1,200 ; Labor...

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A. The journal entry below:

Work in Process 25,000
Labor Efficiency Variance 1,200
Labor rate Variance 2,000
Accrued Wages Payable 24,200

indicates that:

1. employees received an unexpected rate increase during the period.

2. Work in Process valued at $25,000 was completed and transferred to Finished Goods.

3. the total labor variance was $800, unfavorable.

4. more labor time was required to complete the output of the period than was allowed at standard.

B. Thomasson Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports.

The cost formula for plane operating costs is $36,270 per month plus $2,064 per flight plus $1 per passenger.

The company expected its activity in April to be 87 flights and 237 passengers, but the actual activity was 86 flights and 242 passengers.

The actual cost for plane operating costs in April was $211,010.

The activity variance for plane operating costs in April would be closest to:

a. $5,065 F

b. $2,059 U

c. $2,059 F

d. $5,065 U

Labor Cost Variance

The labor cost variance is composed of the labor rate variance and the labor efficiency variance. The labor rate variance is based on the actual and standard cost applied to the actual labor hours used. On the other hand, the labor efficiency variance is standard and actual labor hours at the standard cost per hour. When the standard costs and/or hours are more than the actual costs or hours, the variance is considered favorable because it is costing the company less to pay the workers. When the actual costs and/or hours are greater than the standard, the company is incurring more costs and hours to produce its goods, making the variance unfavorable.

Answer and Explanation: 1

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A. Answer: Choice (4) more time was required to complete the output of the period than was allowed at standard.

The debit to the labor efficiency...

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Cost Variance: Definition, Formula & Analysis

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Chapter 22 / Lesson 25
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Define what cost variance is. Learn the cost variance formula and how to perform a cost variance analysis. Discover material and labor cost variance analysis.


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