The document discusses Hanson Inc.'s standard costs and actual costs for direct labor to produce zippies. Hanson's standard is 1.5 hours of labor per zippy at a rate of $12 per hour. Last week, Hanson used 1,550 labor hours at a total cost of $18,910 to produce 1,000 zippies. This resulted in an actual labor rate of $12.20 per hour. Hanson had an unfavorable labor rate variance of $310 and an unfavorable labor efficiency variance of $600. The variances are explained by differences between actual and standard hours and rates.

1. Variazione dei Costi
Standard
Manodopera diretta

2. Standard Costs
Now let’s calculate
standard cost
variances for
direct labor.

3. Note

4. Hanson Inc. has the following direct labor
standard to manufacture one Zippy:
1.5 standard hours per Zippy at $12.00 per
direct labor hour
Last week 1,550 direct labor hours were
worked at a total labor cost of $18,910
to make 1,000 Zippies.
Labor Variances Example Zippy

5. What was Hanson’s actual rate (AR)
for labor for the week?
a. $12.20 per hour.
b. $12.00 per hour.
c. $11.80 per hour.
d. $11.60 per hour.
What was Hanson’s actual rate (AR)
for labor for the week?
a. $12.20 per hour.
b. $12.00 per hour.
c. $11.80 per hour.
d. $11.60 per hour.
Quick Check  Zippy

6. What was Hanson’s actual rate (AR)
for labor for the week?
a. $12.20 per hour.
b. $12.00 per hour.
c. $11.80 per hour.
d. $11.60 per hour.
What was Hanson’s actual rate (AR)
for labor for the week?
a. $12.20 per hour.
b. $12.00 per hour.
c. $11.80 per hour.
d. $11.60 per hour.
Quick Check 
AR = $18,910 ÷ 1,550 hours
AR = $12.20 per hour
Zippy

7. Hanson’s labor rate variance (LRV) for
the week was:
a. $310 unfavorable.
b. $310 favorable.
c. $300 unfavorable.
d. $300 favorable.
Hanson’s labor rate variance (LRV) for
the week was:
a. $310 unfavorable.
b. $310 favorable.
c. $300 unfavorable.
d. $300 favorable.
Quick Check  Zippy

8. Quick Check  Zippy

9. The standard hours (SH) of labor that
should have been worked to produce
1,000 Zippies is:
a. 1,550 hours.
b. 1,500 hours.
c. 1,700 hours.
d. 1,800 hours.
The standard hours (SH) of labor that
should have been worked to produce
1,000 Zippies is:
a. 1,550 hours.
b. 1,500 hours.
c. 1,700 hours.
d. 1,800 hours.
Quick Check  Zippy

10. The standard hours (SH) of labor that
should have been worked to produce
1,000 Zippies is:
a. 1,550 hours.
b. 1,500 hours.
c. 1,700 hours.
d. 1,800 hours.
The standard hours (SH) of labor that
should have been worked to produce
1,000 Zippies is:
a. 1,550 hours.
b. 1,500 hours.
c. 1,700 hours.
d. 1,800 hours.
Quick Check 
SH = 1,000 units × 1.5 hours per unit
SH = 1,500 hours
Zippy

11. Hanson’s labor efficiency variance (LEV)
for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.
Hanson’s labor efficiency variance (LEV)
for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.
Quick Check  Zippy

12. Hanson’s labor efficiency variance (LEV)
for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.
Hanson’s labor efficiency variance (LEV)
for the week was:
a. $590 unfavorable.
b. $590 favorable.
c. $600 unfavorable.
d. $600 favorable.
Quick Check 
LEV = SR(AH - SH)
LEV = $12.00(1,550 hrs - 1,500 hrs)
LEV = $600 unfavorable
Zippy

13. Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
Labor Variances
Summary
Rate variance
$310 unfavorable
Efficiency variance
$600 unfavorable
1,550 hours 1,550 hours 1,500 hours
× × ×
$12.20 per hour $12.00 per hour $12.00 per hour
= $18,910 = $18,600 = $18,000
Zippy

14. Labor Rate Variance –
A Closer Look
Production managers who make work assignments
are generally responsible for rate variances.
Production managers who make work assignments
are generally responsible for rate variances.
High skill,
high rate
Low skill,
low rate
Using highly paid skilled workers to
perform unskilled tasks results in an
unfavorable rate variance.

15. Labor Efficiency Variance –
A Closer Look
Unfavorable
Efficiency
Variance
Poor
supervision
of workers
Poorly
maintained
equipment
Poorly
trained
workers
Poor
quality
materials
Insufficient
demand

16. Responsibility for
Labor Variances
I am not responsible for
the unfavorable labor
efficiency variance!
You purchased cheap
material, so it took more
time to process it.
You used too much
time because of poorly
trained workers and
poor supervision.

17. Responsibility for
Labor Variances
Maybe I can attribute the labor
and material variances to personnel
for hiring the wrong people
and training them poorly.

18. Potential
Problems
Emphasis on
negative may
impact morale.
Emphasizing standards
may exclude other
important objectives.
Favorable variances
may be
misinterpreted.
Continuous
improvement
may be more
important than
meeting standards.
Standard cost
reports may
not be timely.
Incentives to build
inventories.
Disadvantages of
Standard Costs