Question

The following data relate to product no. 33 of La Quinta Corporation: Direct labor standard: 7 hours at $13 per hour Direct labor used in production: 50,000 hours at a cost of $660,000 Manufacturing activity: 7,000 units completed .

1. The direct-labor rate variance is:

a. $9,800F.

b. $9,800U.

c. $10,000F.

d. $10,000U.

e. None of these.

2. The direct-labor efficiency variance is:

a. $13,000F.

b. $13,000U.

c. $13,200F.

d. $13,200U.

e. None of these.

Answer 1

1. The direct-labor rate variance = Actual Hours * ( Actual rate - Standard Rate )

= 50,000 Hours * [ { $ 660,000 / 50,000 } - $ 13]

= $ 10,000 Unfavorable

Since the Actual Rate is more than the Standard Rate, the Variance is Unfavorable

Hence the correct answer is d. $10,000U

2. The direct-labor efficiency variance = Standard Rate * ( Actual Hours - Standard Hours)

= $ 13* [ 50,000 Hours - ( 7 Hours * 7,000)]

= $ 13,000 Unfavorable

Since the Actual Hours is more than the Standard Hours, the variance is  Unfavorable

Hence the correct answer is b. $ 13,000 U