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Responsibility - as a result, the production department or cost center that controls the direct materials
into the production process is responsible.
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V.Direct Labor
The direct labor variance is similar to the direct materials variance which also arise from two sources.
The total direct labor variance consists of the rate (price) variance and the efficiency (quantity| variance.
The labor efficiency variance is also called the labor time or usage variance. '
Labor Rate Variance is the actual rate less the standard rate, times the actual hours used: (Actual Price-
Standard Pricel x Actual Hours.
A.
Analysis of variance - if this variance is favorable it means less wages per hour were paid than as
expected.
if this variance is unfavorable, the supervisor must determine whether workers are properly assigned to
their particular jobs or it is the result of a renegoatiated labor contract. Hence if it is outside the control
of the management,then cost standards should be revised.
Respònsibility - it is usually the supervisor of the department or cost center where the work is
performed is responsible for the direct labor rate variance.
B. Labor Efficiency (or Usage) Variance is the actual hours less the standard hours, times the
standard rate: (Actual Hours - Standard Hours) x Standard Rate.
Analysis of variance - if this variance is favorable, it indicates that fewer direct labor hours were used
than what is expected. This benefits the company if the labor was efficient; however, if inferior
production resulted, this could reduce the quality of the product and cause a negative impact on the
entity.
An unfavorable efficiency variance may be caused by worker's toking unauthorized work breaks which
results to the inefficiency of the workers. It may also be caused by production delays resulfing from
materials shortages or inferior maieriais.