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Mom’s Apple Pie Company uses a standard cost system. The standard direct labor time for each...

Mom’s Apple Pie Company uses a standard cost system. The standard direct labor time for each pie is 10 minutes. During the most recent month, the company produced and sold 6,000 pies. The standard direct labor rate is $8 per hour; the actual labor rate per hour for the month was $8.40. The company used a total of 980 labor hours.

Brief Exercise 14-22 [LO 14-3]

What was the direct labor rate variance for the month? Was this variance favorable (F) or unfavorable (U)? (Do not round intermediate calculations.)

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Answer #1

Labor Rate Variance is the difference between Standard rate/hour and actual rate/hour for the actual hours used in production. The positive variance is called favorable and negative is called unfavorable or adverse.

Production = 6000 pies
Standard Hours = Standard Hour per pie * No. of pies
=(10/60) * 6000 = 1000 hours
Standard Rate per hour = $8

Actual Hours = 980 hours
Actual rate per hour = $8.40

Labor rate Variance = (SR - AR) * AH
= ( 8 - 8.40) * 980
= 392 unfavourable

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