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 |
$0.75 |
During March, the following activity was recorded by the company:
What is the labor rate ($) variance for March?
$480 U |
||
$480 F |
||
$800 U |
||
$800 F |
Answer)
Calculation of labor rate variance
Labor rate variance = (Standard rate per labor hour – Actual rate per labor hour) X Standard Labor hours allowed for actual output
= ($ 6.00 per hour - $ 6.50 per hour) X 1,600 hours
= $ 800 (Unfavorable) or $ 800 U
Therefore labor rate variance is $ 800 U.
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