1. AMIS 212 Introductory Managerial Accounting
Chapter 10 Module 3
CHAPTER 1 MODULE 1
AMIS 212 Introductory Managerial Accounting
Professor Marc Smith

2. Chapter 10 Module 3: DL Variances
2 Direct Labor Variances:
(1) Direct labor rate variance
(2) Direct labor efficiency variance
● A positive variance is referred to as an
unfavorable variance
● A negative variance is referred to as a
favorable variance

3. Chapter 10 Module 3: DL Variances
DL Rate Variance = (AH x AR) - (AH x SR)
NOTE: The (AH x AR) component represents the
actual cost of direct labor incurred
DL Efficiency Variance = (AH x SR) - (SH x SR)
NOTE: The standard hours (SH) is calculated:
(standard hours of DL per unit x
number of units produced)

4. Chapter 10 Module 3: DL Variances
DL Rate Variance = (AH x AR) - (AH x SR)
● measures the difference between what was actually paid
to the direct laborers and what should have been paid,
according to the standards
DL Efficiency Variance = (AH x SR) - (SH x SR)
● measures the difference between the amount of direct
labor that was actually used to produce goods and how
much should have been used, according to the standards

5. Chapter 10 Module 3: Example #1
DL Rate Variance = (AH x AR) - (AH x SR)
(15,300 x 8.10) (15,300 x 8.00)
123, ,400 = $1,530 unfavorable
● Betty DeRose spent $1,530 more on direct
labor than she should have, given standards
● As an alternative to (15,300 x 8.10), you could
have inserted the total actual direct labor cost
which was given in the problem as 123,930

6. Chapter 10 Module 3: Example #1
DL Efficiency Variance = (AH x SR) - (SH x SR)
(15,300 x 8.00) [(67,500 x 0.25) x 8.00]
122, ,000 = $12,600 favorable
● Betty DeRose used $12,600 less in direct
labor than she should have, given the
standards

7. Chapter 10 Module 3: Example #1
Total DL Variance =
DL Rate Variance + DL Efficiency Variance
1,530 U ,600 F
Total DL Variance = 11,070 F
NOTE: A total direct materials variance is not
calculated since the two variances measure
direct materials at different points in time

8. Chapter 10 Module 3: Review Question
Hanson, Inc. has the following direct labor standards to manufacture one units of its product, called a zippy:
1.5 hours per zippy at $12 per hour
Last week 1,550 direct labor hours were worked at a total direct labor cost of $18,910 in order to make 1,000 zippies. What was the direct labor rate variance?
a. $310 U
b. $310 F
c. $300 U
d. $300 F
18, (1,550 x $12.00) = $310 U

9. Chapter 10 Module 3: Review Question
Hanson, Inc. has the following direct labor standards to manufacture one units of its product, called a zippy:
1.5 hours per zippy at $12 per hour
Last week 1,550 direct labor hours were worked at a total direct labor cost of $18,910 in order to make 1,000 zippies. What was the direct labor efficiency variance?
a. $590 U
b. $590 F
c. $600 U
d. $600 F
(1,550 x $12) - [(1,000 x 1.5) x $12] = $600 U