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Direct Labor Variance:

Direct Labor Variance

                The Direct Labor can be define as that cost which we spend over employees, labor and other supporting staff to complete a task of production and we measure that in terms of labor hours to analyze their performance and efficiency like we say we spend $10 @ of Per labor hour to compete that task.

If we want to define and explain it more easily so we can define the direct labor cost as follows:
·         Direct Labor cost is a product prime cost which we use along with the manufactured overhead.
·         Direct Labor cost is an invariable cost of the direct materials and manufactured overhead.
·         Direct Labor cost is an prime cost along with direct material.
·         Direct Labor cost is an conversion cost along with the manufactured overhead.

The difference between the standard Labor cost and actual labor cost is known as the direct labor cost variance. That is also known as total direct labor cost variance. The managerial accountants have proper abstracted formulas to define the total direct labor cost variances. Which is a explained as bellow:

Direct Labor Variance:   Static Budget                    -              Actual Results
                                                =             (SQ x SP)              -              (AQ x AP)

                                Static Budget:                    Standard Quantity x Standard Price
                                Actual Results:                  Actual Quantity x Actual Price

The Direct Labor variance has future effects on the product price and quantity and we have two different variance there and that are known as price variance and quantity variance and they can be explain as follows:

Direct Labor Rate Variance:

                That means the difference between the direct Labor standard and actual rate and we can further explain it as follows.

Direct Labor Price Variance:                         Middle Budget  -              Actual Results
                                                       =             (AQ x SP)             -              (AQ x AP)
                                                       =             AQ          x              (SP x AP)

Direct Labor efficiency Variance:

                That means the difference between the direct labor standard and actual efficiency and we can further explain it as follows.

Direct Labor Efficiency Variance:    Static Budget     -              Middle  Budget                                                                                          =             (AQ x SP)             -              (AQ x SP)            
                                                    =             SP           x              (SQ x AQ)


There is still the favorable and unfavorable concept exits in the  direct labor variances and according to it when the workers of a production company they use the less standard labor hours to produce the material that is known as  favorable variance. Because in the favorable variance case they are too much productive and they use their full managed efforts to achieve the targets. 

When the worker shrink the production, making the huge material waste and involving in the material or products theft activities  and they are incapable of using the machinery or unskilled so they take too much time for production that is called the unfavorable variance for the direct labor.

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