As with direct materials, the price and quantity variances add up to the total direct labor variance. Direct labor rate variance determines the performance of human resource department in negotiating lower wage rates with employees and labor unions. A positive value of direct labor rate variance is achieved when standard direct labor rate exceeds actual direct labor rate.
Learning Outcomes
- Labor mix variance is the difference between the actual mix of labor and standard mix, caused by hiring or training costs.
- The variance would be favorable if the actual direct labor cost is less than the standard direct labor cost allowed for actual hours worked by direct labor workers during the period concerned.
- An error in these assumptions can lead to excessively high or low variances.
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Direct Labor Efficiency Variance
Recall from Figure 10.1 that the standard rate for Jerry’s is$13 per direct labor hour and the standard direct labor hours is0.10 per unit. Figure 10.6 shows how to calculate the labor rateand efficiency variances given the actual results and standardsinformation. Review this figure carefully before moving on to thenext section where these calculations are explained in detail. rob stone Figure 10.43 shows the connection between the direct labor rate variance and direct labor time variance to total direct labor variance. The direct labor variance measures how efficiently the company uses labor as well as how effective it is at pricing labor. There are two components to a labor variance, the direct labor rate variance and the direct labor time variance.