The records of Norton, Inc. show the following for July: Standard labor-hours allowed per unit of output 2.0 Standard variable overhead rate per standard direct labor-hour $ 35 Good units produced 60,000 Actual direct labor-hours worked 121,000 Actual total direct labor $ 5,551,000 Direct labor efficiency variance $ 45,000 U Actual variable overhead $ 4,041,000 Required: Compute the direct labor and variable overhead price and efficiency variances.

(a) $106,000 Unfavorable

(b) $194,000 Favorable

(c) $35,000 Unfavorable

Explanation:

Given that,

Standard labor-hours allowed per unit of output = 2.0

Standard variable overhead rate per standard direct labor-hour = $ 35

Good units produced = 60,000

Actual direct labor-hours worked = 121,000

Actual total direct labor = $ 5,551,000

Direct labor efficiency variance = $45,000 U

Actual variable overhead = $4,041,000

Firstly, we need to calculate the standard rate. It is calculated by using the formula for Direct labor efficiency variance:

Direct labor efficiency variance = (Standard hour - Actual hour) × Standard rate

-$45,000 = (Standard hour* - Actual hour) × Standard rate

-$45,000 = (120,000 - 121,000) × Standard rate

($45,000 ÷ 1,000) = Standard rate

$45 = Standard rate

*Standard hours:

= Standard labor-hours allowed per unit of output × No. of units produced

= 2 × 60,000

= 120,000

(a) The direct labor rate variance is calculated by the following formula:

= (Standard rate × Actual direct labor-hours worked) - Actual total direct labor

= ($45 × 121,000) - $ 5,551,000

= $5,445,000 - $5,551,000

= $106,000 Unfavorable

(b) The variable overhead rate variance is calculated by the formula below:

= (Standard variable overhead rate per standard direct labor-hour × Actual direct labor-hours worked) - Actual variable overhead

= ($35 × 121,000) - $4,041,000

= $4,235,000 - $4,041,000

= $194,000 Favorable

(c) The Variable overhead efficiency variance is calculated by the following formula:

= (Standard hours - Actual direct labor-hours worked) × Standard Variable Overhead rate per hour

= (120,000 - 121,000) × $35

= $35,000 Unfavorable

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