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Gauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual) If a company calculates that the actual cost for the actual hours worked by employees was $4,400,000, and the amount budgeted for those hours actually worked was 4,500,000, the actual cost for hours worked less the budgeted cost for hours worked is hours worked is less than cuedkeTtual cost at hours orked is less than the budgeted c the budgeted cost at actual hours worked What type of variance is this? Favorable direct labor rate variance If a company calculates that the budgeted cost for actual hours worked is $130,000, and the budgeted cost at the budgeted amount of hours to have been worked is $120,000, the budgeted cost at actual time worked less the budgeted cost at budgeted hours to have been worked is the actual hours worked at budgeted cost is greater than . This tells you that budgeted hours worked at budgeted cost What type of variance is this? Favorable direct labor time variance Standard Direct Labor Cost The controller at your shoemaking company has determined that under normal conditions, you pay your employees $8.50 per hour, and it will take 2.8 hours of labor per pair of shoes. Given this information, calculate the standard cost of labor per pair of shoes. If required, round the standard labor per pair of shoes to the nearest cent Standard Cost per Manufacturing Costs Standard Hours per Pair Standard Price x Pair per Direct Labor hours hour

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