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Daniel, the production manager, was pleased with the company's income statement results. The actual direct labor (DL) cost was $56,400, compared to the budgeted $63,700, while the actual sales volume was 200 units below the original projections. The company used 2,350 DL hours to produce and sell 1,100 units. Each unit was budgeted to take 2 DL hours, with each DL hour budgeted at $24.50 per hour.

Calculate the company's DL price and DL efficiency variances. (Round intermediate calculations to 2 decimal places, e.g., 15.25, and final answers to 0 decimal places, e.g., 5,125.)

- DL price variance
- DL efficiency variance

Answer :

Final answer:

The company's DL price variance is -$7,300 and DL efficiency variance is $3,675.

Explanation:

To calculate the DL price variance, we need to find the difference between the actual DL cost and the budgeted DL cost. The actual DL cost is given as $56,400, and the budgeted DL cost is $63,700. Therefore, the DL price variance can be calculated as:

DL Price Variance = Actual DL Cost - Budgeted DL Cost

DL Price Variance = $56,400 - $63,700

DL Price Variance = -$7,300

The negative value indicates that the actual DL cost is lower than the budgeted DL cost, resulting in a favorable variance.

To calculate the DL efficiency variance, we need to find the difference between the actual DL hours and the budgeted DL hours, multiplied by the budgeted DL rate. The actual DL hours are given as 2,350, and the budgeted DL hours can be calculated by multiplying the number of units produced and sold (1,100) by the budgeted DL hours per unit (2 hours).

Budgeted DL Hours = Number of Units * Budgeted DL Hours per Unit

Budgeted DL Hours = 1,100 * 2

Budgeted DL Hours = 2,200

DL Efficiency Variance = (Actual DL Hours - Budgeted DL Hours) * Budgeted DL Rate

DL Efficiency Variance = (2,350 - 2,200) * $24.50

DL Efficiency Variance = 150 * $24.50

DL Efficiency Variance = $3,675

The positive value indicates that the actual DL hours used were higher than the budgeted DL hours, resulting in an unfavorable variance.

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