The Greeson Clothes Company produced 25,000 units during June of the current year

The Greeson Clothes Company produced 25,000 units during June of the current year. The Cutting Department used 6,380 direct labor hours at an actual rate of $10.90 per hour. The Sewing Department used 9,875 direct labor hours at an actual rate of $11.12 per hour. Assume there were no work in process inventories in either department at the beginning or end of the month. The standard labor rate is $11.00. The standard labor time for the Cutting and Sewing departments is 0.25 hour and 0.4 hour per unit, respectively.

a. Determine the direct labor rate, direct labor time, and total direct labor cost variance for the (1) Cutting Department and (2) Sewing Department.

b. Interpret your results.

Answer:




a. (1)   Cutting Department 
Rate variance: 
Direct Labor 
Rate Variance    =

(Actual Rate per Hour – Standard Rate per Hour) 
× Actual Hours 
Direct Labor   =

Rate Variance ($10.90 – $11.00) × 6,380 hours 
Direct Labor 
Rate Variance 
Time variance: 
Direct Labor 
Time Variance 

=   –$638 Favorable 

=   (Actual Direct Labor Hours – Standard Direct Labor Hours) 
× Standard Rate per Hour 
Direct Labor 
Time Variance 
Direct Labor 
Time Variance 

=   (6,380 hrs. – 6,250 hrs.*) × $11.00 per hour 
=   $1,430 Unfavorable 
* 0.25 hr. × 25,000 units 
Total direct labor cost variance: 
Direct Labor 
Cost Variance 
Direct Labor 
Cost Variance 

=   Direct Labor Rate Variance + Direct Labor Time Variance 
=   –$638 Favorable + $1,430 Unfavorable 
Direct Labor 
Cost Variance 

=   $792 Unfavorable 

(2)   Sewing Department 
Rate variance: 
Direct Labor 
Rate Variance   = 
(Actual Rate per Hour – Standard Rate per Hour) 
× Actual Hours 
Direct Labor    =

Rate Variance (
$11.12 – $11.00) × 9,875 hours 
Direct Labor 
Rate Variance 
Time variance: 
Direct Labor 
Time Variance 

=   $1,185 Unfavorable 

=   (Actual Direct Labor Hours – Standard Direct Labor Hours) 
× Standard Rate per Hour 
Direct Labor 
Time Variance 

=   (9,875 hrs. – 10,000 hrs.*) × $11.00 per hour 
Direct Labor 
Time Variance 

=   –$1,375 Favorable 
* 0.40 hr. × 25,000 units 
Total direct labor cost variance: 
Direct Labor 
Cost Variance    =


Direct Labor Rate Variance + Direct Labor Time Variance 
Direct Labor 
Cost Variance 

=   $1,185 Unfavorable – $1,375 Favorable 
Direct Labor 
Cost Variance 

=   –$190 Favorable 
b. The two departments have opposite results. The Cutting Department has a 
favorable rate and an unfavorable time variance, resulting in a total unfavorable 
cost variance of $792. In contrast, the Sewing Department has an unfavorable rate 
variance, but has a favorable time variance, resulting in a total favorable cost 
variance of $190. The causes of this disparity are worthy of investigation. There 
are many possible causes including tight or loose standards, inferior or superior 
operating methods, and inappropriate or appropriate use of overtime. Combining 
both departments, the overall operation shows an unfavorable cost variance of $602 
($792 – $190), as a result of the weak performance in the Cutting Department.