Question

A company uses the following standard costs to produce a single unit of output.

Direct materials	8 pounds at $1.10 per pound	=	$	8.80
Direct labor	0.50 hour at $8.00 per hour	=	$	4.00
Manufacturing overhead	0.50 hour at $4.30 per hour	=	$	2.15

During the latest month, the company purchased and used 76,000 pounds of direct materials at a price of $1.2 per pound to produce 10,000 units of output. Direct labor costs for the month totaled $37,268 based on 4,840 direct labor hours worked. Variable manufacturing overhead costs incurred totaled $18,500 and fixed manufacturing overhead incurred was $10,000. Based on this information, the direct labor rate variance for the month was:

Multiple Choice

$1,280 favorable

$2,732 favorable

$1,452 favorable

$2,732 unfavorable

$1,280 unfavorable

Answer 1

$1,452 favorable

Working:

Direct Labor rate variance			=	(Standard labor rate-Actual labor rate)*Actual Labor hours
			=	(8.00-7.70)*4840
			=	$         1,452	Favorable
Working:
Standard Labor rate			=	$            8.00	per hour
Actual Labor rate			=	$       37,268	/	4840	=	$       7.70
Actual Labor hours			=	4840	hours