Question

# Your Company manufactures a single product. The company uses a standard cost system and has established...

Your Company manufactures a single product. The company uses a standard cost system and has established the following standards for one unit of product:

 Standard Standard Price Standard Quantity or Rate Cost per Unit Direct materials............................. 1.5 pounds \$3.00 per pound \$4.50 Direct labor.................................... 0.6 hours \$6.00 per hour \$3.60 Variable manufacturing overhead. 0.6 hours \$1.25 per hour \$0.75

During March, the following activity was recorded by the company:

• The company produced 3,000 units during the month.
• A total of 4,750 pounds of material were used
• The actual cost of direct materials was \$13,775
• During March; 1600 direct labor hours were worked at a rate of \$6.50 per hour.

What is the labor rate (\$) variance for March?

 \$480 U \$480 F \$800 U \$800 F

Calculation of labor rate variance

Labor rate variance = (Standard rate per labor hour – Actual rate per labor hour) X Standard Labor hours allowed for actual output

= (\$ 6.00 per hour - \$ 6.50 per hour) X 1,600 hours

= \$ 800 (Unfavorable) or \$ 800 U

Therefore labor rate variance is \$ 800 U.